☀️☕️ Google this: Microsoft Azure and Copilot

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• Google this: Microsoft Azure and Copilot

📊 In the Markets

• HK delayed reaction; Eurorecession-not-a-recession; WalMart Split!

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• 🎓 Margins? Gross!

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Google this: Microsoft Azure and Copilot

Google parent Alphabet slightly missed forecasts for advertising growth in the holiday season, leading to a 5.5% drop in after-hours trading amid tough competition from other online platforms like Facebook / Instagram, TikTok and Amazon.com, though ad revenue on YouTube (with 70bn daily views) grew 20%. Ads account for almost 80% of Alphabet's total revenue. 

CEO Sundar Pichai told analysts that better-than-expected cloud growth was boosted by interest in generative artificial intelligence and that its spending on data centres would jump to support its AI plans. But thanks to AI and the partnership with OpenAI, Microsoft’s Azure cloud grew faster.

Azure sales surged 30% and propelled the cloud division (Microsoft’s largest) and the whole firm to a quarterly revenue record. CEO Satya Nadella said, “We’ve moved from talking about AI to applying AI at scale… By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.” And it did it without sacrificing margins.🎓

..... ▷ Google's business model is a multi-sided platform that generates revenue through advertising. In 2022, Google generated over $224 billion (almost 80% of revenues) from ads (Google Search, YouTube Ads, and Network sites). 

Its key partners are its customers, who use Google's search engine, Gmail, Maps, Android, and other related products.

Companies pay to advertise on Google's search engine and be seen first by their target audience. Google covers more than 90% of all searches performed on the internet, totalling more than 80 billion searches per year. 

Google's biggest cost drivers are: 1) Traffic acquisition costs, i.e. Deals to be the default search engine, organic search upkeep, and partner rewards (22% of ad revenue). 2) R&D, including for AI, self-driving cars, and cloud tech (14% of revenue). 3) SG&A, Salaries, marketing, facilities, and data centres.

It’s time for our second favourite quote again:

..... ▷ Before becoming CEO, Nadella was the executive vice president of Microsoft’s cloud and enterprise group. 

He was responsible for building and running the company’s computing platforms, so rapid integration of AI into the wider suite of Microsoft’s products, like Office and Bing, and Azure’s cloud offerings was always going to be part of his game plan.

..... ▷ A recent paper published in the journal Joule notes that adding generative AI to Google Search increases its energy use more than tenfold because generative AI requires such powerful servers. Another study estimates that emissions intensity from Chat GPT is at 60X the conventional search. 

All that usage of additional computing power (in addition to the energy consumed training those models) could make data centres’ energy consumption and carbon footprint balloon.

We probably all need to be a bit more mindful about what we actually use ChatGPT and the others for, particularly the queries that can be done just as easily on a search engine.

(🤖 But then this is what ChatGPT generated on the topic: "LLMs generate responses based on pre-trained knowledge, requiring less real-time processing and energy consumption. In contrast, traditional search engines continuously crawl the web, consuming more energy.")

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

On Tuesday, Asia-Pacific markets mostly softened, with Hong Kong leading the losses in a bit of a delayed reaction to Monday morning’s Hong Kong court decision to liquidate Evergrande, once the country’s largest real estate firm. After a 20% plunge, shares of the troubled property developer had been halted shortly after 10 am that day. 

During the morning, investors also had time to digest the folding of three of China’s state-owned bad debt management companies (MFM: “bad banks!”) into CIC, possibly to provide more capital to deal with a step up in bad loans and write-offs in the banking system. CIC is the massive sovereign wealth fund managing US$1.3 trillion of China’s US$3.2 trillion in foreign exchange reserves. 

But both the broad HK China benchmark Hang Seng Index and its Property subindex, which includes other Chinese property companies, still ended Monday higher.

But on Tuesday, Hong Kong's Hang Seng index turned tail and dropped 2.4%, primarily driven by declines in real estate and consumer cyclical stocks. Mainland China’s combined Shanghai and Shenzhen market index, the CSI 300, fell by 1.78%.

Europe gave us a reminder that the economy is not the market, and the market is not the economy.

European markets rose to a two-year high on Tuesday despite 0% final quarter GDP growth in the eurozone, which meant it only very narrowly avoided a recession last year after a 0.1% decline in the 3rd quarter.

But Germany, its biggest economy, saw a 0.3% contraction, leaving it teetering on the brink of recession, while its second largest, France, logged a moribund 0.0%. Italy and Spain did better, with growth of 0.2% and 0.6%, respectively. 

US technology stocks led markets lower on Tuesday as investors nervously awaited fourth quarter and full-year 2023 earnings from Microsoft and Alphabet (above). 

The Nasdaq Composite dropped by 0.8%, with Alphabet slipping 1.2% before their fourth-quarter results announcements after market close. Amazon and Apple fell by 1.4% and 1.9%, respectively. The broader S&P 500 closed marginally in the red. 

In bond markets, the two-year Treasury yield increased by 0.03% to 4.36%, while the 10-year yield decreased by 0.05% to 4.05%. 

Walmart announced a 3-for-1 stock split, with shareholders, as of February 22, receiving two additional shares for each owned. After the split, each share's value will be cut to one-third of the previous value. 

This move aims to make share purchases more accessible to employees, presumably since internal stock purchase programmes don’t provide fractional ownership. 

Eagle-eyed readers will notice that investors will hold the same value of WMT stock since they will have triple the number of shares, each worth one-third of the original price.