Microsoft Corp (NASDAQ: MSFT), one of the largest holdings in the Betashares Nasdaq 100 ETF (ASX: NDQ), released its 4Q FY24 and FY24 earnings results after the US market close this morning.
Let's investigate the details and key takeaways for the NDQ ETF investors.
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Better-than-expected, but Azure's growth slowed
4Q FY24 headline numbers from the tech giant were robust, as summarised below.
- Revenue increased 15% year-over-year (YoY) to US$64.7 billion
- Operating income increased 15% YoY to US$27.9 billion
- Net income increased 10% YoY to US$22.0 billion
- Earnings per share (EPS) was up 10% YoY to US$2.95
Both revenue and EPS exceeded analysts' expectations of US$64.5 billion and US$2.94, respectively.
However, all the eyes were on the growth of Azure cloud-computing service, which slowed to 29% from 31% in 3Q FY24. The Microsoft share price fell 6% in after-hours trading shortly after the results were released before narrowing the drop to 2.8%.
Microsoft CEO Satya Nadella highlighted the company's shift to artificial intelligence (AI), which supported its strong growth.
The company spent US$13.9 billion on capital expenditures (capex) in 4Q FY24, up 55% year over year. Management expects the company's capex to keep increasing in 1Q FY25 and for the full year.
Said Nadella: "The company is focused on meeting the mission-critical needs of our customers across our at-scale platforms today while also ensuring we lead the AI era."
What does it mean for Betashares Nasdaq 100 ETF?
The Betashares Nasdaq 100 ETF tracks the performance of the NASDAQ-100 Index (NASDAQ: NDX). Microsoft is the second largest holding in the NDQ ETF, with approximately 8.5% weight. Other large positions include Apple Inc (9.0%), Nvidia Corp (7.3%), and Amazon (5.1%).
Microsoft's overnight results were similar to those of other big tech companies reported earlier. Two takeaways are as follows.
Investors had high expectations for this earnings season. Despite Microsoft's overall results exceeding expectations, investors were concerned about the slowed growth rate for its Azure services.
After all, investors need to see something spectacular to justify Microsoft's high price-to-earnings (P/E) ratio of 32x, based on FY25 EPS estimates by S&P Capital IQ.
This reminds me of Alphabet's results last week. Even though key headline numbers exceeded market expectations, the reaction to its share price was lukewarm as investors focused on higher capex.
Secondly, investment in AI infrastructure and cloud computing seems to be increasing. Similar to Alphabet, Microsoft emphasised its continued investment in AI infrastructure.
Higher spending by big tech companies is a double-edged sword for NDQ ETF investors. The ETF includes large data infrastructure companies, such as Nvidia and Broadcom, which could benefit from the industry's larger investment spending.
The Betashares Nasdaq 100 ETF unit price is down 0.28% to $43.05 at the time of writing. However, the ETF is trading 20% higher than 12 months ago and is up 15% from the start of 2024.
