Microsoft Azure Miss To Lead To Dip In AI Stocks, But The Trade Remains Strong, Predicts Gene Munster — Increased Redmond Capex 'Good News' For Nvidia, TSMC

Deepwater Asset Management‘s Managing Partner Gene Munster has forecasted a potential downturn in AI stocks due to Microsoft Corp‘s MSFT Azure underperformance. Despite this, Munster remains optimistic about the AI sector’s future.

What Happened: Munster took X to share his insights on the impact of Microsoft’s fourth-quarter financial results, released on Tuesday. He expects the AI stocks to decline in response to the Azure growth falling short of expectations.

However, Munster is confident in the long-term prospects of the AI industry, citing the continued heavy investment in big tech infrastructure, particularly Microsoft’s Capex, which stood at $13.8 billion, a 55% YoY increase. “While AI stocks will likely be down tomorrow on the Azure's miss, I believe the AI trade is intact,” he wrote.

Munster particularly highlighted Microsoft, Google‘s parent company Alphabet Inc. GOOGL, GOOG, NVIDIA Corp. NVDA, Apple Inc. AAPL, and Meta Platforms Inc. META among the AI stocks.

While AI stocks will likely be down tomorrow on the Azure's miss, I believe the AI trade is intact. Big tech infrastructure spending continues to push down harder on the AI spring. Microsoft's critical Capex number was $13.8B, 5% higher than the Street and up 55% YoY.$MSFT,…

— Gene Munster (@munster_gene) July 30, 2024

The Azure underperformance led to a drop in Microsoft’s stock during after-hours trading on Tuesday, as reported by Reuters.

Munster also noted that the increase in Capex, particularly Microsoft’s 51% YoY rise, could potentially impact margins in the short term but ultimately drive them higher in the long term. He suggested that this could be good news for companies like Nvidia and Taiwan Semiconductor Manufacturing Co. TSM in 2024.

More capex is a good thing. $MSFT Capex up 51% YoY may pressure margins in the near-term, and long-term push them higher.

Good news for $NVDA, $TSM in 2024.

— Gene Munster (@munster_gene) July 30, 2024

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Why It Matters: Microsoft’s fourth-quarter results, which were released after the market closed on Tuesday, revealed a revenue of $64.7 billion, a 15% YoY increase, beating the Street’s consensus estimate of $64.36 billion. Despite this, the Azure growth missed expectations, impacting the company’s stock.

Microsoft’s stock was already under scrutiny earlier in the day due to a Microsoft 365 outage that affected various services and features.

Microsoft’s performance is particularly significant as it sets the tone for the tech industry’s earnings season, with other tech giants like Apple Inc. AAPL and Amazon.com Inc. AMZN also reporting their quarterly earnings this week.

Price Action: Microsoft Corp’s stock closed at $422.92, down 0.89% on Tuesday. In after-hours trading, the stock fell further 2.72%. Despite this, the stock has risen 14.03% year to date, according to data from Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote