Microsoft has to show evidence that Copilot is a money maker, says Harvest Portfolio's Paul Meeks

Alphabet and Microsoft reporting yesterday both beat estimates on both the top and bottom line. Alphabet also announced its first ever dividend. Joining us now is Paul Meeks, a Harvest Portfolio Management Co CIO. Mixed feelings like everyone about about dividends. Is this good in, In this case, it doesn’t mean the end of the growth period, does it, Paul, You know, I’m a fan of that company for other reasons. You know, I’ve been covering tech for a long time and usually when tech companies, particularly if they’ve been around a while, announce A dividend, you start to wonder, wow, don’t they have anything else to do with their free cash flow? Is this going to kind of impinge their R&D spending? Are they going to grow slower in this case? I think there’s plenty of upside with all the growth drivers. But the way I look at this particular dividend is maybe they check a box for some institutional investors that need to check that box and have dividend paying stocks. But this is no draw at all for me, even though it’s it’s 12%. Why you think the stock is up on some some something other than this or or because of, yeah, I think there were some people, particularly after Meta’s, you know, kind of checkered result the day before that. We’re a little bit worried about the results here. So they had to climb a wall of worry. But in the meantime, you know, the core ad business was very strong and the Google cloud business very strong. And it looks like they’re now doing all the right things, at least in the long term to build their AI product suite. And so I think that they’re in pretty good shape. How about Microsoft? Like it to Microsoft. You know it’s going to be up a bit today. The only thing I worry about Microsoft is I’ve always felt that they have to show evidence that Copilot is actually going to be a thing. And when I say be a thing, it’s got to show that it’s a money maker. And so I’m worried that they still talk about Copilot. They’re AI assisted in these grand PR type terms, but don’t show any financial results. But besides that, the same thing goes, they’re investing heavily in AI. Of course they have a 49% ownership in Open AI and the core business seems to be accelerating or at least in pretty good shape. So I think both of the jumps in these stocks pre market are justified. The the macro environment got more complicated yesterday. We’ll see about today, maybe it gets even more complicated. But the action in both these tech stocks, this doesn’t look like there’s worries about stagflation or rates not coming down, rates going up, the economy slowing. This is purely based on the fund or whatever the these individual companies just did or said will that continue or should tech investors be wary of the macro environment? Joe, it’s an excellent question. They should be wary because I’ve always said we love to talk about AI. But the biggest thing with the valuation of any tech or any other aggressive growth stock is the level of rates. So I think what’s happening here is there some confirmation in the core business with these quarterly results, some excitement about future AI growth. But we finally have probably come around as a consensus view that the Fed will not necessarily lower rates quickly or steeply. And that had been a concern that caused a little bit of a tech wreck, but now it’s baked into the stock price. So I’m a little bit less worried about it. And So what does that mean for your, your feelings on the NASDAQ for the rest of the year? I think the NASDAQ will outperform the S&P, but I don’t think it’s going to be one-size-fits-all. You have to be very carefully looking at these tech names because as we’ve seen and we’re not through the entire quarterly reporting season yet, there are some companies like overnight in the teaser you talked about Intel that had bad news, stocks going to be down a lot and then there are some that have good news. It is not going to be a shotgun shooters market. You’re going to have to be very precise and rifle shoot with specific tech names. Every one of these companies talked about AI, what they’re going to spend, what it’s going to do for them at this point that’s still a a positive when you hear about AI plans, I think that does that does that ever pivot? Do you remember streaming? Wow, we’re getting into streaming. Wow, Disney goes. And then, you know, a year later it’s, yeah, we got into streaming and you know, we know we are around with all the hooplaaround.com, right. The turn of the century. Here’s what I think. I think there’s too much expected in the near and even intermediate term. When I say intermediate term, I’m talking about a couple years about how these AI products will be monetized. I don’t know if they’re ever going to be monetized to the way people think. In the meantime, the infrastructure building that nuclear arms race continues. We’ve seen that this week with all the capital expenditure announcements of all the tech majors. And so who does that benefit? It’s the same old, same old, right. It’s the guys supplying the picks and the shovels like the Nvidia’s and the AMD’s, the Broadcom, the Marvel, etcetera, etcetera. I don’t know if the apps at the end of the day are going to be a real driver financially. And so I with the guys that are building these large language models and the ones that are involved in AI inference, I’m not yet biting on these AI apps because I don’t know if they’re going to be a thing for years at this point. Companies are not being punished for big spending on on AI build outs at this point. And but you think that could happen at some point. Oh, I think there’s always going to be over time as we go longer and longer in this infrastructure building phase. People say what’s the return on those investments. But you think about it, these capital expenditure numbers are just insane and of course in this space the strong will get stronger because they can spend. And so I’m just going with the guys that are assisting in that AI infrastructure bill, not the guys that are making the products.