Elon Musk Aims to Replace Banks, Microsoft Beating Google in the AI Race and Amazon and Meta Beat Earnings Estimates. Newsletter #29
Elon Musk Aims to Replace Banks, Microsoft Beating Google in the AI Race and Amazon and Meta Beat Earnings Estimates. Newsletter #29
One year after his takeover of X, Elon Musk expects it to be a payments platform by the end of 2024.
Elon Musk Says X Will Add Payments in 2024
Microsoft Beating Google in the AI Race
Amazon and Meta Beat Earnings Estimates
Cruise Puts Robotaxi Operations on Hold
S&P Falls Into Correction Territory
Elon Musk Says X Will Add Payments in 2024
One year after his takeover of X, Elon Musk expects it to be a payments platform by the end of 2024. In a meeting on Thursday, Musk reportedly told employees “It would blow my mind if we don’t have that rolled out by the end of next year.”
He has discussed his plans to turn X into a financial hub before. In November 2022 he said he sees a “transformative opportunity in payments” and that payments will “definitely be a direction we’re going to go in.”
Twitter was renamed X as part of Musk’s plans to create an “everything app” for the West, much like WeChat in China.
He went into more detail on the call saying:
“When I say payments, I actually mean someone’s entire financial life. If it involves money. It’ll be on our platform. Money or securities or whatever. So, it’s not just like send $20 to my friend. I’m talking about, like, you won’t need a bank account.”
Musk also mentioned his disappointment in another company he helped create, Paypal, not becoming what it could have been when it was sold in 2002.
“The X/PayPal product roadmap was written by myself and David Sacks actually in July of 2000. And for some reason PayPal, once it became eBay, not only did they not implement the rest of the list, but they actually rolled back a bunch of key features, which is crazy.”
X already has some money transmission licenses in 7 US states and is working on more.
There’ll be problems with getting people to switch to X, not least of which will be trusting Elon Musk with their finances, but perhaps we’ll be using X to pay for things in the not too distant future.
Microsoft Beating Alphabet in the AI Race
Microsoft got a boost from generative AI in its latest earnings whilst Alphabet’s showed the company was struggling with the growth of its cloud business.
The difference in performance served to underscore the lead Microsoft has taken in AI after the launch of ChatGPT and its investment in OpenAI last year.
Microsoft
Wall Street had expected growth in Microsoft’s cloud business to slow but it actually grew 29%, pushing its earnings well ahead of forecasts.
Revenue - $56.5 billion, 13% up year on year.
Earnings per Share - $2.99, 26% up year on year.
Microsoft said new AI projects being built on the platform had more than outweighed customers trying to optimize their cloud workflows and reduce spend.
Microsoft CEO, Satya Nadella, said the company was reaping the rewards from deciding to build a single platform for its AI services earlier in the year and putting OpenAI’s models at the core of its infrastructure.
Alphabet
Growth in Alphabet’s cloud division slowed to 22%, well below the 26% analysts had expected.
Revenue - $76.7 billion, 11% up year on year.
Earnings per Share - $1.55, 46% up year on year.
The main concerns were around the slowdown in cloud growth from 28% in the previous two quarters to 22% in this one. Management attributed this to customers optimizing workloads, a recurring challenge in recent quarters, but despite this, Amazon nor Microsoft saw a slowdown.
There were some bright spots in the earnings though.
For example, this quarter was Alphabet’s fastest revenue growth since Q2 of fiscal year 2020. Advertising revenue also rebounded to grow 9% compared to this time a year ago, up from 3% growth in Q2.
Alphabet stock fell 10% after the earnings report and investors will be looking during the next earnings report to see whether this quarter was just a blip or whether there’s more serious underlying problems with Google’s cloud business.
Amazon and Meta Beat Earnings Estimates
Both Amazon and Meta beat estimates and digital advertising for both companies grew strongly during the previous quarter.
Amazon
Shares of Amazon surged on Friday after the company reported better than expected earnings for Q3 and outlined the potential of AI to its business.
Revenue - $143.1 billion vs $141.1 billion expected.
Earnings per Share - $0.94 vs $0.58 expected.
CEO, Andy Jassy, said on the earnings call that Amazon’s generative AI business is “growing very very quickly” and represents an opportunity worth tens of billions.
AWS revenue was up 13% year over year at $23 billion whilst operating income grew 29% year over year to $7 billion. Market share does seem to be falling though since Microsoft Azure and Google Cloud grew 29% and 22% respectively.
But revenue from Amazon’s digital advertising business was up 26%, much faster than Google’s 9%.
Jassy also said the company’s cost cutting efforts are continuing to pay off and total net income was $9.9 billion for the quarter, 3 times higher than this time last year.
Meta
Meta’s core digital advertising business rebounded after a difficult 2022 when revenue fell for three straight quarters.
Revenue: $34.2 billion vs. $33.6 billion expected.
Earnings per share: $4.4 vs. $3.6 expected.
A major factor in Meta's new momentum seems to be its leading position in improved performance of its online advertisements after Apple's iOS privacy updates in 2021, which complicated user targeting for app developers.
Meta has credited its substantial investments in AI with aiding them in improving advertising revenue.
During their earnings call, Mark Zuckerberg mentioned that the company has seen a 7% rise in user engagement on Facebook and a 6% increase on Instagram this year, attributing these gains to the enhancements made in their content recommendation algorithms.
Meta’s share price is up 138% so far in 2023, making it the second best performer in the S&P 500 behind only Nvidia which is up 183%.
Cruise Puts Robotaxi Operations on Hold
Cruise, General Motors’ driverless car unit, has said it will pause self-driving across all of its US fleet just days after California banned the vehicles from its roads.
California had deemed the company’s vehicles “not safe for the public’s operation” and accused it of misrepresenting details about an accident earlier in October.
However, “supervised trips”, those with a driver behind the wheel, will continue.
The ban comes just months after San Francisco said it would allow driverless taxis to transport passengers without human supervision.
Google’s self driving division, Waymo, and Cruise both had operations there but Cruise has decided to end those too.
Cruise also had driverless fleets across the US in Phoenix, Miami and Dallas too but they’ve now been put on hold too.
S&P 500 Falls Into Correction Territory
The S&P 500, a stock index of America’s 50 biggest companies, has experienced a decline of over 10% from its peak earlier this year, fitting the commonly accepted definition of a market "correction."
The downturn largely reflects investors' concerns over interest rates, geopolitical tensions, and some lackluster earnings reports in the third quarter.
On Friday, the index fell by 0.5%, tipping it just beyond the correction mark relative to its highest point reached on the final day of July 2023.
The US stock market had previously seen a large upswing in the first seven months of the year, fueled by excitement surrounding AI and the anticipation that the Federal Reserve was nearing the conclusion of its interest rate hikes.
However, the index is now heading towards its third successive month of losses, marking the most prolonged monthly downturn since the early stages of the coronavirus pandemic in 2020.