Three Things (1/31)

Microsoft stumbles

Rapid reaction … Microsoft (MSFT) stock fell 6.2% after issuing weaker-than-expected revenue guidance, despite beating Wall Street’s second-quarter estimates. The company reported earnings of $3.23 per share on $69.63 billion in revenue, surpassing analyst expectations, but CFO Amy Hood’s forecast of $67.7 billion to $68.7 billion for the current quarter fell short, leading to the worst single-day drop for Microsoft since 2022.

One major concern was the slowdown in Microsoft’s cloud business. Azure revenue grew 31%—a strong number but down from 33% in the previous quarter. 

Analysts, however, remain optimistic. Goldman Sachs (GS) has called Microsoft one of the most attractive AI investment opportunities and maintained a buy rating with a $500 target. The company’s AI revenue run rate hit $13 billion for the quarter, well above earlier forecasts, and CEO Satya Nadella assured investors that AI would continue to drive growth. 

Apple (AAPL) also reported earnings with mixed results. While overall revenue rose 4%, iPhone sales missed expectations during the critical holiday period, and China revenue dropped 11.1%, marking Apple’s biggest sales decline in the region in a year. Apple stock remained flat despite the news.

Tesla in transition

Analysts divided … Tesla (TSLA) released fourth-quarter earnings with mixed reception from the Street, as the OG EV automaker continues to broaden its remit into robotics, AI, and beyond. In Q4, the company saw a decline in automotive sales, delivering 495,930 vehicles globally, missing expectations of 510,400. This marks Tesla’s first annual delivery decline, with 1.78 million vehicles delivered in 2024, slightly below 1.8 million in 2023.

Nevertheless, Tesla still rose 4% after the earnings call. CEO Elon Musk pivoted attention away from auto sales, instead emphasizing Tesla’s future in AI and robotics. He detailed plans for a driverless ride-hailing service in Austin by mid-2025 and introduced the Optimus humanoid robot, expected in 2026.

Analysts remain divided on Tesla’s trajectory. Some see weakening auto sales as a red flag, while others argue Tesla’s growing AI and robotics focus could drive long-term value. Musk, for his part, insists Tesla will become “the world’s most valuable company” due to its AI dominance.

Price targets reflect this uncertainty. Evercore ISI has a target of $350, Goldman Sachs is at $400, and Morgan Stanley is at $450. Current sentiment within the trading community Stocktwits is “extremely bearish” with a score of 16 out of 100. Tesla closed at $400.28 on Thursday. 

GDP growth slows

Economic snapshot … The U.S. economy expanded at an annual rate of 2.3% in Q4 2024, slightly below analysts’ expectations of 2.4% and down from 3.1% in the previous quarter. The Bureau of Economic Analysis releases GDP data quarterly, tracking the total value of goods and services produced.

A bright spot: consumer spending remained robust, increasing by 4.2%, with notable expenditures on healthcare services and recreational goods. The housing sector also saw a 5.3% rise in residential investment. However, business investment declined, partly due to a significant strike at Boeing (BA).

Exports decreased by 0.8%, indicating reduced international demand for U.S. products. Declines like this can indicate trade imbalances, where the country imports more than it exports, potentially affecting domestic industries and employment.

In the labor market, initial jobless claims fell by 16,000 to a seasonally adjusted 207,000 for the week ending January 25, suggesting low layoffs. Economists had predicted 220,000 claims. While layoffs are low, job opportunities remain scarce for the unemployed.

Meanwhile, the Fed is maintaining its benchmark interest rate between 4.25% and 4.50%, opting to pause rate hikes as it monitors inflation trends. Across the Atlantic, the European Central Bank cut its key interest rate by 0.25 percentage points to 2.75% to support the stagnant Eurozone economy.

One more thing: Can you hear me now? Vodafone (VOD) just made history with the first-ever satellite video call using a regular smartphone, no special equipment needed. The call, made from a remote area with no service, proves that soon anyone can stay connected anywhere. Vodafone plans to roll this out across Europe starting later in 2025. 

Disclosures

As of writing, MSFT is a holding in Titan's Flagship strategy. TSLA is a 0.61% position in the ARK Venture Fund.

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