- FTSE 100 futures in the red
- Microsoft delivers cloud growth, outlook soft
- Meta’s capex plans in focus
- Oil rises after an unexpected drawdown in US stockpiles
- Haleon posts a strong quarter
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“Futures markets point to a sea of red across the major global equity markets as investors strap in for another busy day of corporate earnings. The FTSE 100 looks set to trade lower, after the index closed out yesterday’s session at its lowest level since early August, with Rachel Reeves’ Budget failing to ignite the market flame. Gilt yields will be watched closely after reaching five-month highs in the aftermath of the Budget. Investors are re-assessing where UK interest rates might end up, given that the investment plan for growth is likely to add inflationary pressures into the economy.
Both Microsoft and Meta are trading lower in after-hours trading despite posting strong results. Microsoft hasn’t been the hottest stock of late, and heading into earnings, it was cloud growth that was under the microscope. Growth of 33% for Azure, its cloud computing platform, looked like a strong number, and when you add in the 12% contribution from AI, it continues to support the argument that the major cloud providers are well-placed to benefit from the new AI demand cycle. The downbeat stock reaction is likely due to guidance given on the call. Margins are expected to come under pressure next quarter as the ramp-up in AI spending hits the cost line, and with Azure growth expected at 31-32%, that would mark a slowdown quarter-on-quarter. The other key area in focus is Copilot. Commentary continues to be upbeat without really giving the detail some would want to see, and guidance for a slow growth in revenue contribution was a little soft. Short-term uncertainty shouldn’t detract from the long-term picture and Microsoft has placed itself at the top of the food chain, and with AI integration opportunities across the stack from infrastructure to software, it’s likely to stay there for some time.
The Meta story continues to be dominated by the mammoth capex plans, and what that might mean as we move into 2025. Looking at guidance, it doesn’t appear that Meta’s been able to deploy as much capital as it would have liked over the past few quarters, so Q4 could be playing catchup with close to $15bn needed to be spent to hit targets. We don’t know if that kind of run rate is what to expect in 2025, commentary suggests not, but that’s likely to cause some near-term caution from investors. We know that Mark Zuckerberg takes a ‘build it and they will come’ approach to these big projects, but markets had a love-hate relationship with this kind of spending from the days when it was throwing money at the Metaverse. After a period of getting fit, there’s a balance between throwing cash at AI and having a tangible plan for capital deployment, it feels like Meta’s right on the edge. Aside from the capital plans, performance was strong with the core ad businesses continuing to benefit from AI – Meta is leading the way in terms of getting tangible benefits from AI integration across its suite of apps.
Brent crude oil prices climbed to around $72.6 per barrel, adding to a recent rebound as US oil stockpiles fell against expectations. Inventories unexpectedly dropped by 0.5mn barrels last week, catching markets off guard, while gasoline and diesel supplies also declined. Despite this, concerns over weak demand in China and uncertainty about OPEC+’s production plans are keeping some pressure on prices.”
Derren Nathan, head of equity research, Hargreaves Lansdown:
“Consumer health group Haleon’s had a strong third quarter with its suite of power brands such as Sensodyne and Advil powering organic growth of 6.1%, with positive contributions from both price and volume. Organic operating profit growth of 7.4% has slowed a little but not enough to derail previously upgraded expectations of a high-single-digit outcome for the full year. Haleon’s execution continues to impress and moves to divest non-core brands such as ChapStick has freed up some wiggle room to increase its interest in its Chinese joint venture. Organic sales in this strategically important region were up ‘strongly’ over the quarter. Haleon’s progress hasn’t gone unnoticed, and it trades at a premium to some of its closest peers. Net debt’s been moving in the right direction too, but the balance sheet remains relatively stretched. Until further progress is made on that front Haleon is unlikely to compete in terms of shareholder payouts, adding some pressure to keep outperforming on the growth front.”
