Earnings From ServiceNow and Microsoft Cost Me Quite a Bit of Money :(
When I looked at my portfolio yesterday discreetly during English class, I was greeted by an odd sight. E*Trade shows you your biggest portfolio movers for the day, and I saw NOW down 12%, GCT up 7%, and MSFT down 6%. Those three companies are ServiceNow, GigaCloud Technology, and Microsoft. GigaCloud continues to cook—up 25% in the past month, but down 6% today >:(—so I’m not going to jinx it. ServiceNow though, I will talk about because that is a precipitous loss. First, Microsoft though.
Microsoft beat on top and bottom line numbers, but they always do that, so the market expects it. Revenue grew 12.3% y/y and EPS rose 10.2% to a brazy $3.20 a share. And keep in mind that these numbers are doubly insane for a company worth 3.10 trillion dollas. I know it’s expected, but revenue beat by a billion, and EPS by 12 cents. This is all good, right? So, why would the market think Microsoft was worth 6% less after this report?
The market is always looking forward, and you always need to remember that. Microsoft’s guidance for their fiscal third quarter was not super strong, as they are predicting revenue of about $68.5 billion, which is a billion less than the market expected. Or maybe it was the fact that Azure grew by 31% y/y, not 32%, and if that sounds entirely trivial, that is because it is.
And that was it, but the market thought that news meant that Microsoft was worth $200 billion less. Basically, the market was feeling awkward and iffy about AI, so fewer people bought, and more people sold. I am not worried at all. As I said in my last article, DeepSeek represents a future of more ubiquity in AI, and for a company that is dropping $25 billion per quarter to build new data centers to handle all of the processing for AI, that can only be a good thing. Compute, compute, and some more compute will be needed in the future. Microsoft is sitting on a lot of compute, and they have explicitly stated that they will be making more.
Basically, Microsoft continues to be the highest-floor, highest-ceiling combo that I see. Last year, they made $13 billion alone from AI, and cloud-related AI revenue continues to make more and more money for the company. Besides, they have CoPilot, which is a bit eh right now, but it can be a massive add-on for the future in terms of their Microsoft software products, Excel, Word, and PowerPoint.
In my view, Microsoft is creeping more and more into buy view. I do not feel the urge to pull the trigger right now, but like I said, they continue to, in my mind, offer the highest upside and highest amount of comfort.
The more confusing slippage was ServiceNow. This is a company that just lost 12% of its entire worth, even though the revenue for the past quarter grew by 21%. In case you missed my lengthier explanation of ServiceNow, they basically make software for businesses, so they will be more efficient. You should think about HR software, accounting software, etc… They are a leader when it comes to monetization of AI and machine learning.
ServiceNow grows their revenue at an almost exactly 20% clip every single quarter. If you looked at a graph of this company’s growth, you would think that they were a ponzi scheme of some kind. Because of this habit, performance like this has become expected, so when anything is a little off, for example predicting subscription growth of 20.5%, compared to the 20.8% that was expected, or when they predict full year revenue that is $100 million shorter than expected.
Basically, this is a complete nothing, and sometimes, you just have to eat something like this because the company is so good.
I do think this makes ServiceNow a screaming buy. This company is positioned excellently, and I see only good things on the horizon. A 12% drop like this is probably the best buying opportunity you will get for the next little while.
