​​Microsoft stock vs AMD stock – a tale of two earnings​

​​​Divergent reactions to Microsoft and AMD earnings

​The recent earnings reports from Microsoft and Advanced Micro Devices (AMD) have sparked divergent market reactions. Despite Microsoft's solid performance, with 15% revenue growth and a 10% increase in net income, its stock price declined.

​In contrast, AMD's good quarter, featuring 9% revenue growth and a significant jump in net income, was rewarded with an 8% after-hours stock gain. This disparity suggests that investors currently favour chip manufacturers over direct AI service providers.

​Microsoft's AI investments and outlook

​Microsoft faced high expectations for immediate returns on its AI investments, which may have contributed to the market's tepid response. While Azure cloud growth slowed to 29%, this was attributed to demand outstripping capacity rather than a lack of interest. The company significantly increased its capital expenditure, primarily directed towards AI and cloud infrastructure. This aggressive investment strategy underscores Microsoft's commitment to building capacity to meet the surging demand for AI-related services.

​AMD's position and industry outlook

​AMD presented a positive outlook for the AI chip market, boosting its 2024 revenue forecast and predicting tight supplies through 2025. This optimistic view aligns with the broader industry trend of strong demand for AI capabilities. The similarity in the underlying narratives of both Microsoft and AMD – indicating robust AI demand – suggests that the market's divergent reactions may not fully reflect the long-term potential of these companies in the AI space.

​Microsoft's strategic position and financial strength

​Microsoft defends its high spending as a necessary step to meet demand and prevent customer loss in the competitive AI landscape. The company's financial strength, characterized by strong cash flow and steady return on capital, supports this aggressive investment strategy. Moreover, Microsoft has consistently rewarded shareholders with stock price growth and returns, demonstrating its ability to balance investment and shareholder value.

​CEO credibility and long-term vision

​Satya Nadella's track record of growing Microsoft's valuation from $381 billion to $3 trillion lends credibility to the company's current AI strategy. This remarkable growth suggests that Nadella's long-term vision and execution deserve investor trust, even if short-term market reactions appear sceptical. The article implies that investors should consider this proven leadership when evaluating Microsoft's AI investments and future potential.

​Microsoft stock price – technical analysis

​The stock dropped below the 200-day simple moving average (SMA) for the first time since early 2023, though it rallied off the lows. The broader uptrend is still in place, and a revival back above $426.00 might suggest that a low has formed for now putting the price back on course to test the July record highs.

​Microsoft price chart

​AMD stock price – technical analysis

​Unlike many other tech stocks, AMD has been in a sustained drawdown in recent months. While it hit a record high in early March, the stock then fell sharply. A recovery from the April low fizzled out at $187.00, and then it dropped to $139.00, close to the high of June 2023 and the low from January.

​This support level may provide the foundation for more gains and a new push back towards the July highs.

​AMD share price chart