Morning Call Jan 25: Microsoft puts a cloud in the feeling of the markets

Microsoft's forecasts for the "cloud" unit are penalizing technology stocks. Stock markets started the session with a slight decline and futures point to a decline at the opening of the North American stock exchanges, after Microsoft announced cautious forecasts that are affecting investors' sentiment about the results of technology companies. The company even exceeded expectations in the fourth quarter, but estimated revenues below expectations for the current quarter, due to a slowdown in the growth of the "cloud" business. Microsoft recorded a growth of only 2% in revenues in the fourth quarter, representing the lowest expansion in five years, reflecting how the technology sector is facing challenging times due to a slowdown in the economy. Microsoft's shares traded in negative territory, which pressures the entire technology sector and the market in general. The results of Texas Instruments contribute to the pessimism, as the chip manufacturer exceeded expectations in the fourth quarter, but also advanced with revenue forecasts that were below what analysts had predicted. More than in the fourth quarter numbers, investors are focused on the companies' estimates, as they represent a powerful signal of how weaker economic growth will affect the companies' activity in 2023. With the "earning season" in full swing on Wall Street, investors will be paying attention today to the numbers of Tesla and IBM.

In Europe, the numbers being announced by companies are more encouraging. Airline EasyJet estimated that it will achieve results above market expectations, generating a 9% appreciation in shares. ASML, the largest European technology company, revealed results in line with expectations and pointed to a 25% growth in revenues in 2023, above the 20% estimated by analysts. French company Alstom exceeded expectations in the fourth quarter and reiterated the estimates for this year. However, ASML and Alstom's shares are trading slightly lower. Analysts are more cautious about the results of European companies, downgrading their forecasts at a high rate. They currently point to a 0.9% increase in revenues in the fourth quarter of listed companies in the Stoxx600, when last week they were pointing to a 4% increase.

In terms of the economy, the outlook is now more encouraging in Europe as well. The advanced PMI indicator entered expansion territory (above 50) for the first time since June, reinforcing the signs that the Eurozone may avoid an economic recession in 2023. In the US, the same indicator improved, but continues to point to a contraction of economic activity. An evolution that could hold the Fed back in its monetary policy tightening.

DAILY NEWS

EDP is among the preferred stocks of CaixaBank/BPI, being the only Portuguese company on the group of 10 chosen for the Spanish bank's "core list." According to the news, the buy recommendation was reiterated, as well as the target price of 5.80 euros, which incorporates a potential appreciation of 22%. Outside the "core list," analysts updated other target prices and recommendations for companies listed on the national reference index PSI, being more optimistic about Mota-Engil, but more pessimistic about Sonae.

Microsoft exceeded earnings expectations, but estimates disappoint. Microsoft suffered a 12% decline in fourth-quarter profits due to increased costs, with revenues rising 2% to $52.7 billion. The tech giant exceeded analysts' predictions in both indicators, due to the good performance of the "cloud" unit, which saw revenues grow 31%. The shares reacted strongly to these numbers presented after the close of the session, but reversed to positive territory after Microsoft revealed that the slowdown in Azure ("cloud") business will condition the company's revenues.

Texas Instruments suffers first revenue decline since 2020. Texas Instruments announced a set of negative results and uninspiring forecasts, exacerbating pessimism for the chip industry. Revenues fell 3.4%, in the first decline since 2020 breaking a cycle of double-digit increases. Profits exceeded analysts' predictions, but the company advanced with revenue and profit projections that were below what analysts estimated, citing weaker demand from its customers.

EasyJet expects to exceed earnings predictions. Airlines are recovering from the strong decline in activity during the pandemic, benefiting from a sharp recovery in air travel. Low-cost carrier EasyJet announced that it should reach results in 2023 above market estimates, citing strong growth in reservations for the summer. In the fourth quarter, it reached pre-tax losses of 133 million pounds and the company estimated that the results of the first half will be much more favorable than the same period last year.

US regulator attacks Google's monopoly. The US Department of Justice accuses Google of abuse of a dominant position in digital advertising, threatening to dismantle one of the key businesses of the Alphabet-controlled company, considered a monopoly. The regulator may force Google to sell a unit that generated 12% of revenues in 2021 and has a crucial role in the search and "cloud" divisions.

Inflation in Australia reaches 32-year high. The trend of easing inflation in the developed world has not reached Australia, where the consumer price index rose 3.1% in the year to December, the highest since 1989, driven by rising fuel and housing costs. The Reserve Bank of Australia, which targets an inflation rate of 2-3%, has indicated that it will not raise interest rates in the short term to curb inflation.