Gene Munster, Managing Partner at Deepwater Asset Management, has projected a potential decline in AI stocks following the underperformance of Microsoft Corp.’s (NASDAQ:MSFT) Azure in its fourth-quarter results. Despite this anticipated dip, Munster remains bullish on the long-term prospects of the AI sector.
Munster shared his insights on social media platform X, discussing the impact of Microsoft’s financial results released on Tuesday. He indicated that AI stocks are likely to face a short-term downturn due to Azure’s growth not meeting market expectations. However, he emphasized his optimism for the sector’s future, citing substantial investments in big tech infrastructure. Specifically, Microsoft’s capital expenditures (Capex) saw a 55% year-over-year increase, reaching $13.8 billion. Munster believes that this level of investment signals a robust future for AI. “While AI stocks will likely be down tomorrow on the Azure’s miss, I believe the AI trade is intact,” he wrote.
Munster highlighted several key players in the AI industry, including Microsoft, Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), NVIDIA Corp. (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL), and Meta Platforms Inc. (NASDAQ:META). These companies are positioned to benefit from the ongoing advancements and investments in AI technologies.
The disappointing performance of Azure led to a drop in Microsoft’s stock during after-hours trading on Tuesday, according to a report by Reuters. Munster pointed out that while the increase in Capex could temporarily impact margins, it is likely to drive long-term growth and profitability. This is particularly good news for companies like Nvidia and Taiwan Semiconductor Manufacturing Co. (NYSE:TSM), which stand to benefit from increased demand for AI-related hardware in 2024.
Microsoft’s fourth-quarter results revealed a revenue of $64.7 billion, a 15% year-over-year increase that surpassed the consensus estimate of $64.36 billion. However, the slower-than-expected growth in Azure’s segment affected investor sentiment, causing the stock to decline. Earlier in the day, Microsoft’s stock was also under scrutiny due to an outage in its Microsoft 365 services, adding to the negative sentiment.
The performance of Microsoft is significant as it often sets the tone for the broader tech industry’s earnings season. Other tech giants, including Apple Inc. (NASDAQ:AAPL) and Amazon.com Inc. (NASDAQ:AMZN), are also set to report their quarterly earnings this week, and their results will be closely watched.
In terms of stock performance, Microsoft Corp’s stock closed at $422.92, down 0.89% on Tuesday, with a further decline of 2.72% in after-hours trading. Despite these recent drops, Microsoft’s stock has risen by 14.03% year to date, according to data from Benzinga Pro.
Munster’s analysis underscores a cautious short-term outlook for AI stocks due to Microsoft’s Azure miss but maintains a strong long-term view based on ongoing investments and infrastructure growth in the AI sector. This balanced perspective highlights the complexities and potential of investing in rapidly evolving technology industries.