Ruth Porat, Alphabet CFO, at the WEF in Davos, Switzerland on May 23rd, 2022.
Adam Galica | CNBC
1. We have earnings analyses of Alphabet (GOOGL) and Microsoft (MSFT) that are much better than Wall Street. To wit, MSFT was extraordinarily good and CFO Amy Hood did not bother to put in the price increase on Copilot — or any other artificial intelligence add on — yet. If she had, the stock would be up, not down 4%. Microsoft had amazing quarter and would have been up based on how strong Azure was and how excellent all of the ancillaries were. Gaming will be great with ATV, I really liked LinkedIn and management called a bottom in personal computers. The company has to spend more for generative AI but didn’t give much attention to what the spend will bring. We raised our price target.
2. Google parent Alphabet (GOOGL), on the other hand, is up more than 6% because internet search accelerated and cloud gained share, while capital expenditures went down. Dramatic search gains at no additional costs, amazing YouTube numbers with no traffic acquisition costs and a declining (for one quarter) spend shows that GOOGL is replacing linear TV ads. Tour de force quarter even with a nice 28% bump in cloud. Clean quarter, except Ruth Porat leaving her CFO position but staying as president. She did not say spend would decline, which is too bad because it could be game, set, match here on ads already. Despite these positive developments, the overhang from the U.S. Department of Justice’s ongoing antitrust lawsuit against the company puts a lid on our excitement.
3. Are there too many cloud players with Google, Microsoft (Azure) Amazon Web Services and Oracle? I think the decline in after-hours trading for Amazon (AMZN) came from the cost of keeping up with the Azures without any gain from generative AI yet. The FTC’s case against Amazon is the opposite of the DOJ’s campaign against Alphabet and is far less dangerous. Here’s the deal: Justice wants Google to pick a buy side or a sell side for ads in search. Devastating. FTC wants to break up Amazon. At this pace AMZN’s stock would go up in that event.
4. Be prepared for a jarring question or two at the Federal Reserve’s meeting this afternoon about the recent comment from PulteGroup (PHM) that rate hikes have failed to slow inflation in housing because there is not enough supply and costs are going up if you move because you lose your lower mortgage rate. There has been an increase in raw materials of late, including oil and gasoline, but the Fed is still looking for cracks in credit and wages and an actual decline in the 40% increase in housing since 2019. Where are the bankruptcies? Where is the end of help wanted signs? Infrastructure spend will be way up next year so the Fed must stay vigilant. Two raises left this year and not done.
5. Amazing price target increases in PHM right ahead of the Fed. You cannot keep housing prices down. The supply is actually diminishing. Credit Suisse, Bank of America, Oppenheimer, Citi, Barclays and UBS all raise PTs.
6. Snap (SNAP) is revealed Tuesday night as an also-ran after issuing weak guidance for the current quarter. The Snapchat parent can no longer be taken seriously. The cost of spend on AI is too great. Shares dropped more than 18%.
7. Texas Instruments (TXN) is getting its butt kicked by NXP Semiconductors (NXPI) and Analog Devices (ADI) and yet crows of good free cash flow. If you want free cash flow, go to Alphabet. I hated this earnings call because this company should not even bother having one. That’s the kind of contempt it has for Wall Street. Shares fell 4% in after-hours trading.
8. Still reeling from the decline of worry by General Motors (GM) CEO Mary Barra about what could be a coming strike, led by fiery United Auto Workers union leader Shawn Fain. Wall Street has deemed a tentative deal between UPS and the Teamsters a cave-in. Labor keeps flexing its muscles.
9. You want growth and a spec? Check out the numbers at Banco Santander (SAN): 13% growth and an addition of 9 million customers. With center right governments coming, this might be the steal in the group.
10. Or it might be Wells Fargo (WFC), which announces an astounding $30 billion stock buyback as it has massive capital. The Club holding raised its dividend by 5 cents to 35 cents, keeps the yield at 3%. Really amazing.
Correction: We incorrectly stated that growth at Microsoft’s Azure unit accelerated in the recent quarter. The sentence has been removed.
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