Many Big Tech companies are expected to continue reporting earnings next week, with Microsoft (MSFT) reporting on Tuesday, January 30th, followed by Meta Platform (META) on Thursday, February 1st. I am planning to do so.
Angelo Zino, senior equity analyst at CFRA Research, joins Yahoo Finance Live to comment on some of the biggest drivers of the fourth quarter for components of the Magnificent Seven.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by luke carberry morgan.
video transcript
Julie Hyman: What about the meta, which has just recouped all its pre-pandemic losses? So it seems like there's probably pretty good expectations baked in there.
Angelo Gino: Yeah, I mean, listen, as far as the meta, I mean, if you look at the two companies that have performed best since the market low in October with respect to Magseven, that was of course NVIDIA and the other big players. The outperformer was meta. And the big reason for that is ratings. And the valuation for us is still somewhat attractive. On a calendar 25 basis, it's about 19, 20x, but on a net cash basis, it's even more attractive, at about 18, 18.5x. So our view here is that the numbers are going to be very good. Given what we've seen here from the digital advertising space, this should be a different kind of beat-and-raise quarter.
I think there will be a lot of attention on what they say about AI and how AI is improving ecosystems like theirs, and also about China. In China, if you think about companies like Shein and Temu, they're spending a lot of money on the Meta ecosystem because they're aggressively trying to advertise outside of China because the market is slowing down.
So within the US, we think emerging markets like Brazil will be a big theme for Meta in 2024. They believe the first half of this year will continue to perform well. Again, I'll give you some quick comps.
And there's going to be a big election in the second half of this year, right? So if you have an investor who's trying to run an election here. This could potentially be done via meta.
Julie Hyman: Now, finally, I would like to ask you about Microsoft. Of course, we also mentioned AI as a meta element. Is AI a factor for Microsoft? Do you think investors are going to focus on the rest of the business, which is still a large part of the business? Also, do you think Microsoft needs to show profitability related to AI? mosquito?
Angelo Gino: When you think about Microsoft, the company actually has three major long-term growth drivers. Cloud is one thing, AI is another, and with the recent acquisition of Activision, gaming is the other. And we think all three areas give him a very good outlook for the December quarter. On the cloud side, he noted that the December quarter may see a slight slowdown from the September quarter, but it was still very healthy at 27-28%. If the contribution from AI is large and the numbers are higher than that.
AI's contribution to cloud growth in the September quarter was around 3 percentage points. If we get something closer to 4 to 5 percentage points, and we see some improvement on the cloud side, I think there's upside potential there and that could be exciting for Microsoft. And, of course, his thoughts on Copilot 365, which was just released in November. I think they'll be very excited. But of course Copilot's trajectory is going to be kind of a huge area of interest for investors.
So that's what we expect from Microsoft. This is our top play in terms of being a strong buy. And the 12-month price target is $440.
