“Write a newsletter about Microsoft’s second-quarter earnings for fiscal year 2023.”
This is something you could ask ChatGPT if you wanted to create an article that dives into Microsoft Corporation’s (NASDAQ:MSFT) second-quarter earnings, which were released on Tuesday.
ChatGPT is an artificial intelligence (AI) chatbot that you can essentially think of as a “language machine.” Standing for “chat generative pre-trained transformer”, ChatGPT is an engine that can produce texts on everything from solving math problems to writing a book report. And its use is simple. Once you’re on the chatbot’s public website and have created an account, all you have to do is type your question into its search bar, and you get your answer.
And, folks, I even tested it out. When I asked it to describe itself, the AI chatbot said:
OpenAI, ChatGPT’s developer, is a non-profit AI research company. It launched the chatbot last November with huge success. ChatGPT crossed one million users in its first week, and went up to 21 million in December. It’s now considered the paradigm of how extensive and influential AI-generated content can be.
So, in today’s Market 360 – which, don’t worry, wasn’t written by AI – let’s dive into Microsoft’s partnership with OpenAI and then review the company’s second-quarter earnings.
Microsoft first partnered with OpenAI back in July 2019. Microsoft invested $1 billion into the research company, and its cloud service Azure became OpenAI’s exclusive cloud provider. The plan between the two companies was to build AI that could solve more complex tasks, such as “more personalized healthcare and education.”
Microsoft invested in OpenAI again in 2021 and did so for a third time last Monday. Microsoft announced a new $10 billion, multiyear deal with the ChatGPT maker. This renewed partnership could pave the way for Microsoft to incorporate the chatbot AI into its applications, like Word, PowerPoint, and Outlook.
The partnership comes with more than a multibillion-dollar cost, though. Microsoft also announced last week that it plans on laying off 10,000 employees as part of cost-cutting measures.
Further, ChatGPT isn’t foolproof. It can give inaccurate information or biased answers about an issue. And it can – at least for now – only provide users with information prior to 2021, because that’s the year its training stopped.
In fact, I had also asked ChatGPT the question I started with here: What was Microsoft’s second-quarter earnings? But since the current earnings are for fiscal year 2023, it couldn’t give me the most up-to-date numbers.
A Look at Microsoft’s Earnings
So, how exactly did Microsoft fare in its second quarter?
Microsoft reported earnings of $2.32 per share, down 7% year-over-year from earnings of $2.48 per share, but beat analysts’ estimates of $2.29 per share. Revenue of $52.75billion was up slightly from $51.73billion a year ago, but missed analysts’ estimates of $52.94 billion. Microsoft’s Cloud business rose 18% year-over-year to $21.51 billion, topping analysts’ expectations for $21.44 billion. Total revenue increased 2%, which is the slowest rate since 2016.
The stock jumped 4% in after-hours trading on the earnings and cloud revenue beat on Tuesday, but it took a turn once the company’s poor forward-looking guidance was released.
For the third quarter, Microsoft anticipates revenue of $50.5 billion to $51.5 billion, a potential 4% decrease from the second quarter, while analysts forecasted revenue of $52.43 billion. Earnings per share are forecast to come in at $2.32, up from earnings per share of $2.22 a year ago, but flatlining from the second quarter.
However, company management remains optimistic about the company’s future, saying in a statement:
The age of AI is upon us, and Microsoft is powering it…We have the most powerful AI supercomputing infrastructure in the cloud. It’s being used by customers and partners, like OpenAI, to train state of the art models and services, including ChatGPT.
And Microsoft is getting another partner in AI: NVIDIA Corporation (NASDAQ:NVDA).
Last November, NVIDIA announced it is teaming up with Microsoft for a multi-year collaboration to build “one of the most powerful AI computers in the world.” NVDIA is a leading computer graphics company, making graphic processing units (GPUs) for consumers and businesses. From video games to professional visualization, datacenter and automotive applications, NVIDIA’s graphics cards enhance the processing capability of its users’ computers.
Chipmakers are critical for different AI innovations, and right now NVIDIA is at the forefront of helping to develop autonomous vehicles.
For example, the AI platform to help build automobiles for Foxconn, which makes the iPhones, is well respected. In fact, NVIDIA’s AI platform is used to help build vehicles for Foxconn, and its chips are utilized in all Mercedes systems. Basically, NVIDIA is pioneering self-driving and is taking the lead over Tesla, Inc. (NASDAQ:TSLA).
The Tesla system uses cameras. The NVIDIA system will use cameras, but especially LIDAR. Well, what’s LIDAR? It’s a forward infrared radar. It’s what the military uses to send missiles through smoke and rain and things like that so they can be accurate.
When I order a car out West, I always order a LIDAR system because I want to see the animals at night. If infrared sees an animal, it will stop the vehicle. Tesla got away from LIDAR, so when a Tesla gets in heavy rain, sleet, snow, ice, fog or smoke, the system doesn’t work.
The bottom line is NVIDIA is the AI and graphic chips leader.
Regarding its fundamentals, the company is expected to release its fourth-quarter earnings for fiscal year 2023 on February 22. Earnings are projected to decline 38.6% year-over-year to $1.32 per share, down from earnings of $1.32 per share, while revenue is projected to drop 21.4% year-over-year to $6.01 billion. However, the analyst community has revised fourth-quarter earnings estimates higher in the three months – and that’s always a positive sign.
NVIDIA has been one of my favorite stocks for many, many years – and it’s up around 380% since I added it to Growth Investor back in May 2019. And while it was stuck at a D-rating in Portfolio Grader recently, its upgrade to a C-rating over the weekend tells me that institutional investor interest in the stock is growing. We’ll get a better pulse on the company’s fundamentals after its fourth-quarter results and guidance are released, but I do think it’s the better AI bet right now.
With that said, given its C-rating in Portfolio Grader, I would not add new money to the stock just yet. Microsoft, on the other hand, holds a D-rating in Portfolio Grader, making it a “Sell.” Given the company’s mixed earnings and weak stock performance, I don’t expect it to be upgraded to a B-rating (a “Buy”) anytime soon.
If you do have some money to invest, you might want to consider my Growth Investor service. Today, I am adding three exciting new buys in my Growth Investor Monthly Issue for February, as well as revealing my latest Top Stocks lists.
P.S. There is a great divide opening up in America – and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Microsoft Corporation (MSFT) and NVIDIA Corporation (NVDA)