🤖 Amazon and Microsoft’s Cloud Slowdown

Amazon ($AMZN) and Microsoft ($MSFT) have seen notable gains this year, with Amazon up 24% and Microsoft up 20%, driven by their leading positions in the AI race and an overall rebound in technology stocks. Beneath all the hype though, both companies are experiencing a slowdown in one of their most important segments: cloud computing.

This is not something to turn a blind eye to. In 2022, Microsoft's Intelligent Cloud unit, which includes Azure, accounted for 38% of revenue and 39% of operating income. 

While Amazon Web Services (AWS) only represents 14% of Amazon’s revenue, last year it was Amazon’s fastest-growing business, generating $22.8 billion in operating income while the rest of Amazon’s businesses combined posted a $10.6 billion operating loss.

According to analysts, Cloud demand is expected to slump in Q1 of 2023 with growth from Microsoft's Azure projected to fall from 49% to 31% and growth from Amazon’s AWS projected to fall from 37% to 14%. The two companies are expected to release their earnings reports next week.

Big Picture: While AI has been the talk of the town, the deceleration in revenue growth from cloud computing should not be overlooked. This business unit has been a huge contributor to the bottom lines of both Amazon and Microsoft, and its performance in the coming quarters will likely impact the companies' overall trajectories (and stock prices 👀).

💸 Apple continues to expand into Fintech

Tech giant Apple ($AAPL) has continued its expansion into the lucrative world of fintech, releasing a new high-yield savings account. This adds to their suite of growing financial products, including a “buy now, pay later” service released just a few weeks ago.

Within just a few years of its launch, the Apple Card gained over 6.7 million American cardholders (as of May 2021), more than double the year prior. The number of worldwide Apple Pay users is even more staggering, at ~ 507 million, according to Statista.

This new savings account is available with the Apple Card, which was first introduced in partnership with Goldman Sachs in 2019. The savings account has attracted significant attention after Apple announced it’s offering a 4.15% APY, which they cite as “more than 10 times the national average."

Despite the growing popularity of the Apple Card, it has faced its fair share of challenges. Most notably, the loss rate on Apple Card loans soared to 2.93% in Q2 2022, the highest among major U.S. card issuers, due to lenient approval requirements and a rise in delinquent payments.

Big Picture: Apple's APY will likely put pressure on big banks, which are already facing a slew of issues, to increase interest rates.

🚗 Tesla's Uncertain Road Ahead

This week, Tesla ($TSLA) reported its Q1 2023 financials, which caused the stock to drop nearly 10% the next day. Their earnings report was a mixed bag with revenue of $23.3B and earnings-per-share of $0.85, matching analyst expectations.

Despite this, Tesla faced challenges in the quarter, with gross margins declining from 29.1% in Q1 2022 to 19.3%. Additionally, operating income dropped to $2.7 billion, resulting in an 11.4% operating margin.

This decline in gross margin is partially due to a series of price cuts Tesla has made across its vehicle lineup.

In 2023 alone, the electric vehicle maker has slashed prices six times, most recently reducing the prices of its Model Y and Model 3 vehicles by $3,000 and $2,000. While the price cuts may boost sales volume, they've also impacted Tesla's margins.

During the Q1 earnings call, CEO Elon Musk faced questions regarding the rationale behind the price cuts. Musk responded by emphasizing Tesla's long-term vision, stating that the company could technically sell its cars for "zero profit" while banking on future profits from its autonomous driving technology.

Top Discussions This Week 🎙

🗞️ What else you might’ve missed:

• Toronto Stock Exchange is losing Canadian companies to U.S. exchanges.

• Google faces an antitrust lawsuit from 9 more states.

• Disney plans to cut thousands of jobs, including 15% of their entertainment division.

• Lyft plans to cut ~1,200 jobs, roughly 30% of its employees.

• Canada’s inflation slowed down to 4.3% in March.

• Loblaws is investing $2B in expanding its business.