- Meta shares soar in pre-market trading after beating earnings for tenth quarter in a row
- Microsoft now worth more than $4 trillion after its shares jump post-results
- The two companies are now worth twice as much as the entire FTSE 100 blue-chip index of UK stocks
- AI remains the driving force for both companies
“Meta and Microsoft have just delivered the kind of earnings most companies can only dream of,” says Dan Coatsworth, investment analyst at AJ Bell.
“They’ve smashed market forecasts by a country mile and caused investors to scream with joy.
“Meta is the life of the party as its latest quarterly earnings exceeded expectations by 22%, which is an astounding feat. It’s rare to see that scale of earnings beat.
“Meta has become the king of the reporting season as it has now delivered 10 consecutive quarters of earnings beats. Its shares jumped 11.5% in pre-market trading, adding $173.6 billion to its valuation which implies the company is now worth $1.68 trillion.
“Whereas Microsoft has ‘only’ beaten earnings for five quarters in a row, pre-market trading activity implies it will join a very special club when Wall Street opens today.
“Its results triggered an 8.3% jump in its shares in pre-market trading, adding $316.6 billion to its valuation and pushing the company through the $4 trillion mark.
“Microsoft’s new implied valuation is $4.13 trillion. It is the second largest company by value on the US market after Nvidia.
“Together, Microsoft and Meta are now worth $5.81 trillion which is roughly twice as much as the entire FTSE 100 index. That’s quite something and goes to show how the UK market’s lack of big technology names has left it trailing behind.”
Magnificent Seven name needs to be put to rest
“It’s time to bid farewell to the Magnificent Seven banner. In share price performance terms, two names have lost their membership to the club as Apple and Tesla have both suffered double-digit share price losses this year. Their underperformance has persisted, which means the Mag7 name is no longer relevant. These stocks are no longer driving the market, so the banner needs refreshing.
“We’re now in the new era of the Famous Five, with Meta and Microsoft doing their best to dethrone Nvidia as the ones delivering the most excitement.”
Key themes from Meta and Microsoft’s results
“Artificial intelligence was the dominant theme yet again with Meta and Microsoft’s results. Both companies are spending significant sums of money to boost their AI infrastructure, going all-in with the hope of reaping big rewards down the line. Fortunately, they’ve got solid income from their day job helping to fund this investment.
“Microsoft’s cloud computing arm is going from strength to strength, while the personal computing operations continues to show resilience.
“Meta is riding high from digital advertising. Companies around the world know the power of its social media networks including Instagram and Facebook as channels by which to reach a large audience.
“Meta’s algorithms are second to none, embracing AI to help serve up relevant content to keep users engaged and feed them with advertisements that match their tastes and interests.
“The significant amount of cash being generated from carrying advertisements allows Meta to indulge in its more speculative metaverse dreams while also spending big to further strengthen AI capabilities. This is fine for now, but problems could arise if the advertising taps are turned off.
“History suggests that companies quickly scale back advertising during gloomier economic conditions. That means Meta needs to make hay while the sun shines.”
