Microsoft Earnings Review, Reddit Changed Quickly, and a Batman Disaster
Before we even start with the Reddit and Microsoft talk, we need to talk about a disaster at my school today. Because today is Halloween, I showed up in a costume, specifically a $350 Batman costume I had saved for and ordered from a cosplay website. I ordered it a few weeks ago and it got here on Tuesday. My school sent out an email saying “no masks or Halloween costumes” one day later.
I was like, “That is stupid. Whatever, I already have the costume anyway. I am wearing this thing.” I made it through the first period, took a sick photo with my chill math teacher, and was stopped in the hallway by a past teacher, Mr. “SS” Trevorrow. I got an A in his class and a five on the AP exam (not super easy) despite his awful teaching. He reported me to an assistant principal. I told this principal that I did not have a change of clothes (in the Batman voice), and she told me that we would just have to wait until my parents could bring me a change of clothes. I then told her that I might have a shirt in my backpack. Currently, my Batman costume is sitting in her office, as I type this furious epistle.
Okay, first, Microsoft. Revenue from their cloud services rose 33% in this past quarter, which beat expectations. They beat on revenue, bringing in sixteen percent growth on $65.6 billion, with net income beating expectations too, popping 11% to $24.7 billion. Revenue forecasts for the next quarter were about $800 million lower than what analysts were expecting. Capital expenditures (CapEx) jumped 50% compared to a year ago, all the way up to $15 billion. Most of these expenditures are AI-related, especially with Microsoft’s data centers.
Those are the biggest highlights from the report, and none of that tells me that the stock should be down 6% on the day. If you believe in AI, invest in Microsoft. If you do not believe in AI, do not invest in Microsoft. I see no reason why this stock should fall this much off of that data. I already see positive signs from this earnings report like 12% of Azure revenue growth coming from AI. Nothing has changed about Microsoft from this report. Now would not be an awful time to buy if you were desperately waiting for a buying opportunity, but seriously, this is a massive overreaction from the market. Just take the very annoying 6% hit today and move on.
Three days ago, I wrote an article about Reddit. I was a bit confused about how to value the company. I was not planning on writing about the company again so quickly, but their report was startling, to say the least. Reddit has an excellent quarter on the whole, even posting an extremely surprising profit. Revenue estimates beat, revenue from this quarter beat, visits beat, really, everything beat. However, I am out now. The company’s market cap is $20 billion. That is too much.
Reddit is worth too much. Their forward P/E is 600, and they only make $1 billion in revenue. This would not be a problem if I saw viable paths to them making more money, but I do not see paths that justify that valuation. They already have the boost from Google’s new algorithm which boosts their results, they already have AI contracts (these could expand but not enough), and they are not keeping new users to the degree I would. I just do not see a way where they justify this valuation.
In short, buy/hold Microsoft, sell Reddit, and do not wear a Batman costume to school.
