Tuesday was a big day for the tech sector, with giants Microsoft (MSFT) – Get Free Report and Google (GOOGL) – Get Free Report both reporting earnings that, though strong, weren’t strong enough to send their respective stocks higher.
Tesla (TSLA) – Get Free Report shares took another dip in after-hours trading in the wake of a decision by a Delaware judge to strike down the company’s 2018 $55.8 billion compensation package for CEO Elon Musk.
Universal Music Group (UMGP) – Get Free Report has started something of a war with the wildly popular social media app TikTok, and Mark Zuckerberg is appearing before a Senate Judiciary Committee … again.
Let’s get into it.
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Analyst: Microsoft’s earnings ‘should be hung in the Louvre’
Microsoft, which recently surpassed a $3 trillion market cap, reported earnings of $2.93 per share on revenue of $62.02 billion, an 18% year-over-year increase that handily beat analyst expectations.
Microsoft’s cloud segment reported nearly $26 billion in revenue, a 20% year-over-year increase that likewise topped expectations. Within that, revenue from its Azure cloud offerings grew 30%, with CEO Satya Nadella saying that Microsoft now has 53,000 Azure customers, a third of which joined the service in the past year.
“We move from talking about AI to applying AI at scale,” Nadella said. “By infusing AI across every layer of our tech stack, we are winning new customers and helping drive new benefits and productivity gains.”
Still, shares of the company moved lower in after-hours trading on lighter-than-expected guidance and a warning from Nadella that Microsoft’s capital expenses will likely rise “materially” over the next few quarters as it works to continue investing in AI.
Analysts, however, were pleased with the quarter, with 16 analysts boosting their Microsoft price targets in response to the report.
Wedbush analyst Dan Ives boosted his price target to $475 from $450, saying in a note that the quarter is a “masterpiece that should be hung in the Louvre.”
The AI revolution, he said, has begun.
Related: Analysts reveal new Microsoft price targets after AI costs cloud earnings
Wedbush: Expectations were too high for Google
A decent fourth quarter complete with earnings beats and a reacceleration of its cloud business was not enough to inject any magic into Google’s stock.
Google earned $1.64 per share on revenue of $86.3 billion for the fourth quarter, beating analyst estimates of $1.60 and $85.25 billion respectively. Google’s cloud computing business grew 25% to $9.19 billion.
“We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud,” CEO Sundar Pichai said in a statement. “Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come.”
Still, shares of Google took a 5% dip in after-hours trading, a move that, according to a Wedbush note, is the result of overinflated expectations and slightly waker-than-expected ad revenue.
Wedbush maintained its $160 price target, saying that its thesis on the company remains unchanged.
“Google remains a dominant digital advertising business with healthy underlying growth and significant optionality related to AI across both its advertising and Cloud segments,” Wedbush said.
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Musk loses out
At the conclusion of a lengthy lawsuit, a Delaware judge on Tuesday struck down Tesla’s $55.8 billion compensation package for Musk, ruling that the company failed to justify the package.
Richard Tornetta, the investor who sued Tesla, argued that investors were not informed that Musk created the compensation and that the board was beholden to him.
“Defendants were unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process,” Judge Kathaleen McCormick wrote in her decision.
“Ultimately, the key witnesses said it all — they were there to cooperate with Musk, not negotiate against him.”
This comes just a few weeks after Musk said in a post on X that he wants 25% voting control in Tesla before really ramping up the company’s AI verticals.
“Never incorporate your company in the state of Delaware,” Musk said in response to the ruling.
Ives called the decision a “shocker” in a note, though he added that a silver lining to the ruling is that the board could use this as an opportunity to “lock Musk into the Tesla story along with a new AI corporate structure” with a new package that has both Musk and shareholders pleased.
“Musk is Tesla and Tesla is Musk and shareholders need Musk locked into Tesla through this next phase of the EV growth and AI endeavors over the coming years,” Ives said.
The billionaire can still appeal the ruling.
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UMG goes to war with TikTok
In an open letter published Tuesday, Universal Music Group said that it would stop licensing music to TikTok when its current contract expires on Jan. 31.
Assuming the two sides can’t come to an agreement by the end of the day, TikTok would have to remove UMG’s music from its list of available songs on the app by the end of the day Thursday.
UMG said that it has been pressing the social media app over three concerns: proper pay for artists, artist protections from AI, and safety for TikTok users.
UMG said that TikTok’s proposed compensation plan amounts to a fraction of the rate other major social platforms pay to license music.
“Ultimately TikTok is trying to build a music-based business, without paying fair value for the music,” the label said.
UMG added that TikTok is allowing its platform to be inundated with AI-generated music recordings, while adding tools to enable users to create AI-generated music, “then demanding a contractual right which would allow this content to massively dilute the royalty pool for human artists, in a move that is nothing short of sponsoring artist replacement by AI.”
In a response, TikTok said that UMG was putting its “own greed above the interests of their artists and songwriters.”
Related: Taylor Swift is the latest victim of ‘disgusting’ AI trend
What we’re watching today
A who’s who of social media CEOs will be appearing in front of the Senate Judiciary Committee Wednesday at 10:00 a.m. in a hearing titled: “Big Tech and the Online Child Sexual Exploitation Crisis.”
Linda Yaccarino, CEO of X, Shou Chew, CEO of TikTok, Evan Spiegel, CEO of Snap Inc., Mark Zuckerberg, CEO of Meta and Jason Citron, CEO of Discord, are all set to testify before the committee.
This comes in the wake of an incident where X users shared explicit, AI-generated images of Taylor Swift, something that highlighted a trend that has been ongoing since at least 2017 of the creation and dissemination of nonconsensual deepfake porn, an issue that has severely impacted women, affecting female high school students in one particular instance last year.
“For the first time, the CEOs of five Big Tech companies will testify about the crisis of online child sexual exploitation,” U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, said in a statement. “I look forward to hearing from these companies about what they’re doing to make their platforms inaccessible to child sex offenders.”
Durbin added that some of these companies have recently launched new child safety measures that he called “long overdue.”
X, for example, is launching a new trust and safety center, an announcement that came along with an update on the company’s work in tackling child sexual exploitation on the platform. Snap is expanding its in-app parental controls. And Meta outlined a new framework for legislation to support parents and protect teens online.
“It should not take a hearing before the Senate Judiciary Committee to finally get these companies to prioritize child safety. Because these changes are half measures at best, I welcome the opportunity to question them about what more needs to be done,” Durbin said in a statement.
You can watch the hearing live here.
Contact Ian with AI stories via email, [email protected], or Signal 732-804-1223.
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