Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Earnings review: Microsoft, Alphabet, AMD, and Novo Nordisk
Peter Garnry
Chief Investment Strategist
Summary: Microsoft, Alphabet and Novo Nordisk all delivered strong quarterly results. Microsoft's cloud business is growing rapidly, Alphabet's advertising revenue is strong, and Novo Nordisk's weight loss drugs are in high demand. AMD missed on its Q1 revenue guidance, which sent its shares down 6%. Investors are nervous that AMD's results are a warning of a potential slowdown for Nvidia.
Microsoft is in a leading position on AI application execution
The world’s most valuable company delivered a strong quarterly result with revenue increasing 18% y/y and EPS of $2.97 up 28% y/y as its global distribution with the corporate sector continues to give Microsoft an edge in execution on generative AI on the application side. Cloud revenue was $33.7bn vs est. $32.2bn and the company said that AI boosted revenue growth by 6%. From a broader macro perspective Microsoft hinted that capital expenditures will increase materially in the current quarter from the previous quarter as demand for AI related services drives a lot of investments in datacentres. While investors were generally a bit disappointed on growth from Microsoft, but also Alphabet and AMD (see below), the overall conclusion is that growth remains robust and that the outlook is positive which should bode well for equity sentiment going forward.
Strong result from Alphabet bodes well for the economic outlook
Although investors were negative last night after Alphabet announced its Q4 earnings result the company delivered its fourth straight quarter of increasing revenue growth hitting 13.5% y/y in Q4. The EBIT margin expanded for the third straight quarter. The combination of rising revenue growth and expanding EBIT margin are powerful for equity sentiment. The increased focus on raising profitability at Alphabet is paying off and the company is now consistently delivering around 27% EBIT margin up from around 20% before the pandemic.
While Alphabet missed a bit on its advertising revenue relative to estimates the absolute numbers are good and from a macro perspective they suggest companies have a positive outlook for global demand. Advertising is a pro-cyclical indicator. One of the positive surprises were the cloud business revenue coming in at $9.1bn vs est. $9bn as the generative AI push by companies bolstered demand in Google’s cloud services.
Novo Nordisk records highest growth rate in more than 20 years
Novo Nordisk smashed all records in Q4 2023 beating estimates for FY2023 revenue and EBIT. The revenue growth rate in Q4 2023 was 37% y/y the highest recorded growth rate since 2003. This is a big achievement since the company has grown considerable in size over the past 20 years. It highlights the insatiable demand for weight loss drugs and that the growth is not demand constrained but production capacity constrained. This is also seen in the revenue mix with the obesity care segment seeing declining revenue q/q in Q4. The sales mix has shifted from Wegocy, the FDA approved weight loss drug, to Ozempic which is FDA approved for treating type 2 diabetes but contains the same active ingredient, semaglutide, which is a GLP-1 receptor, which causes weight loss.
The revenue guidance for FY2024 is 18-26% which means that the mid-point is a bit below consensus estimate of 23.3%, but given the shares are almost 2% higher it indicates that the market believes that upside surprises could occur this year. The CEO comment that growth can be sustained despite competition is strong forward-looking statement by Novo Nordisk that cement its position as the most valuable company Europe. Novo Nordisk’s results also confirms the investment boom that is currently ongoing in the global technology and health care sectors.
Is AMD guidance a warning for Nvidia?
AMD is playing catchup with Nvidia in delivering advanced AI chips for training of generative AI models. Q4 revenue at $6.2bn was slightly above estimates and adjusted operating income was in line with estimates. The Q1 revenue guidance of $5.1-5.7bn vs est. $5.8bn was a big disappointment for investors sending its shares down 6%. Despite this weaker than estimated outlook AMD did everything it could to paint a picture growth acceleration in AI chips during the FY2024 as the company will roll out new products. Nvidia shares are indicated down in the US pre-market session, suggesting the market is nervous that AMD’s results are a warning of a potential slowdown for Nvidia which reports earnings on 21 February. Recent notes on equities
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