US futures jump, fueled by stellar Alphabet, Microsoft earnings

April 26, 2024

3 minutes read

US stocks were set to bounce back on Friday as Alphabet (GOOG, GOOGL) and Microsoft (MSFT) earnings revived hopes for a Big Tech-led rally even as a reading on the Federal Reserve’s preferred inflation gauge showed price pressures remain sticky.

S&P 500 (^GSPC) futures rose roughly 0.9%, while contracts on the tech-heavy Nasdaq 100 (^NDX) jumped 1%. Futures on the Dow Jones Industrial Average (^DJI), which includes fewer tech stocks, were up 0.3%.

Gains for Alphabet and Microsoft are giving stocks a lift after Thursday’s sell-off, with rises of around 11% and 4%, respectively. The stellar results from the “Magnificent Seven” duo showed cloud revenue boosted by strong AI demand — and scope for both to benefit from that boom.

That fired up confidence that earnings from the Magnificent Seven techs can lift the broader market out of the doldrums — confidence that had taken a knock from Meta’s (META) disappointing forecast earlier in the week.

At the same time, the market took in the latest reading of the Fed’s preferred inflation gauge, the personal consumption expenditures price index for March. The “core” measure in that report, which strips out the cost of food and energy, rose 2.8% over last year, above estimates for 2.7% but unchanged from the previous annual increase.

The reading comes as Wall Street has furiously scaled back its expectations for Fed rate cuts this year. Already, since the start of the year, traders have recalibrated their bets from seven to just one.

In other individual movers, Snap (SNAP) shares rocketed up 26% in premarket trading as Wall Street welcomed signs a revamp of its digital ad business is finding takers in its after-hours report.

Live2 updates

Fri, April 26, 2024 at 11:15 AM GMT+1

Day two of trading for AI play Rubrik

Rubrick’s (RBRK) stock surged 16% to $37 by the close of a rocky day on Wall Street on Thursday, a sizzling response to another AI ecosystem play on its IPO day, similar to the appetite for Reddit’s (RDDT) newly issued shares just a few weeks earlier.

The stock is indicating higher in the pre-market today.

But the market response to Rubrik is a sidebar to the story of co-founder and CEO Bipul Sinha — which he shared with me down on the NYSE.

Sinha founded Rubrik in 2014, working in coffee shops by the offices of Google and YouTube in an effort to hire top developer talent.

He doesn’t hide his modest upbringing in India, which has fueled his business building.

“Maximal thinking is how I lifted myself out of poverty,” Sinha wrote in a letter in the company’s IPO prospectus.

“He is the American Dream come true.” Lightspeed Venture Partner’s co-founder and partner Ravi Mhatre told me.

Our chat on Yahoo Finance Live below.
Fri, April 26, 2024 at 11:00 AM GMT+1

Here’s one thing analysts are chatting about on Microsoft, Google, & Meta

A lot of folks on Wall Street have been caught off-guard by the spending related to AI buildouts at the big-cap tech companies.

Meta (META) kicked off these concerns earlier in the week, calling out a potential material lift in spending this year and in 2025. The stock promptly got re-priced for that potential, dropping 10.5% on Thursday.

Last night, we heard the same free spending vibe from Microsoft (MSFT) and Alphabet (GOOGL) — though those quarters were good enough to overshadow spending worries.

A couple comments below from the Street on this topic that have caught my eye this morning.

Jefferies on Alphabet’s capex:

“Capex of $12.0 billion was up from $11.0 billion in Q4 and nearly double 1Q23’s $6.3 billion. Management is guiding future quarterly capex to be at or above Q1 level. We now model 2024 capex of $49.7 billion, up 54% year over year. AI is the big driver as Google sees future benefits across the business. Tech infrastructure, especially servers and data centers, will be 90% of 2024 capex, with offices <10%. While capex is high, Google is focused on efficiencies as machine costs for AI/SGE responses are down 80% since launch a year ago.”

Guggenheim on Microsoft’s capex:

“Management noted that capex would increase significantly in F4Q driven by build-out of Cloud and AI infrastructure, but no numerical guidance was given. Furthermore, management said that FY25 capex would be greater than FY24 capex. We are currently modeling FY24 capex of $53.4 billion, up almost 70% from FY23, and FY25 capex growth of 20% to $64.0 billion. These are big numbers that will flow through cost of goods sold over time, though it presumably will be utilized to fuel growth in Azure (and Copilot).”

Cost overruns are proving to be the hidden killer of the AI trade.