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☕ Microsoft, the Michelangelo of earnings reports

Jan 31, 2024

Good morning! 👋

Stories are flying today about how Wall Street didn’t like this earnings report or that data point. That they’re punishing MSFT and GOOG because (insert your nonsense here).

It’s bunk.

Big traders know how to push the investing public’s buttons and play to their emotions.

So, they did.

Hopefully, you didn’t fall for it.

This stuff is as predictable as it gets for anyone who knows how to read the room.

In fact, I told you several times last week that this move was coming right here in the 5 with Fitz and in OBA updates as well.

On Monday, I told the fabulous Stuart Varney during an interview on national television that I expected traders to take prices higher into Microsoft earnings (which I thought would be great, btw). Then orchestrate “rug pull.” (Watch)

And voila... the S&P 500 and the Nasdaq are both down today from said “rug pull.”

The puts I suggested are holding their own as are the hedges I mentioned.

To be fair, I could have been absolutely wrong. That comes with the territory in this job, especially when you do it as long as I have.

The point I want to make is shenanigans like this don’t come out of left field.

Wall Street has spent billions of dollars learning how to push your buttons. They are masters at playing to your emotions because they know that the greed and fear you feel when prices go one way or the other make it easier to separate from your money.

Don’t give ‘em the opportunity.

Keep your emotions out of the equation!
Buy the best, ignore the rest.

Here’s my playbook.

1 – MSFT: the Michelangelo of earnings reports

AI is real.

It is the fastest multi-billion-dollar business being built in recorded human history.

It’s not stopping any time soon.

If you are not on board with MSFT and other AI-related companies we talk about frequently you need to take a serious look in the mirror and ask yourself why not. (Read)

$500.

And, if you’d like learn the truth about how today’s markets work and have some help finding great stocks, I’m here. I’d love to earn your trust, goodwill, and business. If you’ve got a handle on Wall Street’s nonsense, awesome!

2 – Boeing doesn’t want a wipe out but will probably get one anyway

Boeing narrowed losses when it reported on the heels of a series of colossal missteps that are cratering the company, the brand and soon, public trust. (Read)

But also declined to give 2024 guidance. 🤦‍♂️

Uh-oh.

I made the remarks a while back that we could be watching the end of Boeing and this report reinforces that notion absent a serious, immediate turnaround that sends slackers packing, immediately upgrades quality control, and forces execs to get a grip.

Certainly, it’s reason to buy Airbus and Embraer and keep an eye on Chinese makers who will undoubtedly seize the opportunity.

Keith’s Investing Tip: Financial graveyards are littered with the bones of once great companies that failed to take corrective action while they had the chance. Kodak, Wang, DEC, Eastern Airlines... what’s happening to Boeing is, sadly, a far more common tale than you’d think.

3 – Judge to Musk: Return it

A judge ruled that Tesla CEO Musk must return compensation he received as part of a performance-based equity plan. (Read)

Executive compensation has its challenges to be sure, but this is just plain wrong.

Capitalism is by its very definition a performance-based activity.

It’s an unpopular reality for those who would castigate companies like Tesla and a very dangerous, slippery slope for investors.

Think about it.

If you’ve ever gotten a bonus for doing a great job at work, delivering something early, pounding a few extra nails, a bigger tip while delivering food... congratulations, you’ve gotten a performance bonus.

Just like Musk.

Some years ago, the Harvard Business Review reported that a “$1,000 change in corporate value corresponded to a change in CEO compensation of just $2.59.” (Read)

What’s more, the same study found that more aggressive pay for performance systems produced sharply lower pay for less talented managers and dramatically higher compensation for those who delivered.

Musk has changed the world.

Those who have gone along for the ride have made billions. I find it interesting that there wasn’t a peep about how much money the shareholder who brought the suit has made.

Let's assume, just for the sake of argument, that he's been on board from the very beginning. When it went public June 29, 2010. Assuming he’d invested just $1,000, he’d be sitting on $165,163.79 today, having enjoyed a return of 16,416.38% according to finmasters.com.

Some would call that excessive – just sayin’.

The danger with rulings like this one is that they’re being made in an era of what’s being euphemistically called “stakeholder” capitalism.

The risk here is that the world’s best companies stay private.

Or go private.

Either way, the investing public loses.

4 – Fed-schmed

The boffins are trying desperately to ignite a news story.

The Fed may provide rate hike timeline guidance this week says one. The Fed now faces expectations for rate cuts inflation has slowed says another. (Read)

Yawn.

Stick to the world’s best CEOs who are tasked with turning a buck no matter what and who are already moving ahead and have been for a long time. Like, oh I dunno... Microsoft’s Nadella, Apple’s Cook, AMD’s Su, and yes, Tesla’s Musk.

5 – No, AMD didn’t fall short

Analysts got it wrong again.

AMD reported spectacular numbers while boosting its AI chip forecast by $1.5B to $3.5B, a near doubling of projections. (Read)

Data center segment sales jumped 38%.

Companies are looking for lower priced, faster, and more efficient chips as an alternative to NVDA’s offerings, which account for roughly 80% of the market. Don’t forget about the 3D chipsets we discussed recently either.

AMD’s in the right place at the right time.