Disappointing Big Tech Earnings

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Alphabet disappointed Wall Street when its search advertising business fell below expectations for revenues. Microsoft posted the strongest revenue growth since 2022, but its cloud growth fell below some estimates. Microsoft’s 2nd quarter revenue jumped by 18%. Azure (its cloud unit) grew by 30% on the back of the strong demand for its AI products. CFO Amy Hood said AI services boosted Azure’s growth rate by 6%. Alphabet’s stock plummeted by more than 6% after the bell after its search ad business came in at $65.52 billion versus the estimate of $65.94 billion. But the overall revenue and earnings topped expectations. Its quarterly revenue grew by 3% -- the fastest since early 2022. The recent quarter marked the 4th straight quarter of accelerating revenue growth. (Source: CNBC) Today, Fed Chair Jerome Powell will appear in a press conference to reveal his latest outlook on interest rates. Yesterday’s job openings data was hotter than expected, indicating a strong labor market. So, Wall Street will analyze Powell’s take on the current state of the economy. - “Tomorrow may be significant for markets as the cross-currents of big-tech earnings, the ADP jobs report, the distribution of Treasury issuance, and Powell comments meet at a critical juncture,” said Jose Torres at Interactive Brokers. - “I’m expecting Powell to take some rate cuts off the table by perhaps even calling the current projections aggressive.” A hot economy may mean that the central bank could feel less inclined to cut rates soon. Why would they cut rates if the economy is doing so well? It could only raise the risk of aggravating inflation, so Powell could push back on the current projections of rate cuts. And of course, they will likely emphasize on being data-dependent. They don’t need to make a decision now. They’ve got several weeks of data before they have to decide on whether to cut rates in March. How To Collect 8% A Year Risk-Free Plus A Bonus Of Huge Share Appreciation Potential Today’s Stock Pick: Paychex, Inc. ([PAYX]( 51 years ago, an entrepreneur named Tom Golisano started a payroll company with $3,000 and a credit card in a small, but charming town of Rochester, New York. And it took four years before he got his first paycheck from the company. That business, Paychex, eventually grew to the size that it pays 1 in 12 U.S. private-sector employees. And it serves 700,000+ clients in the U.S. and Northern Europe, making it the #2 HR/payroll provider in the world behind ADP. Paychex is a great business with extraordinary economies, but what makes Paychex stand out is the rare combination of dividends and growth. This combination is very powerful, and I will explain why: Dividends: Paychex loves to treat shareholders with dividends – a current yield of 2.91%. It pays out about 82% of its earnings in dividends each year. So, you can expect your dividends to grow alongside Paychex’s earnings growth. And if you invest and hold for a decade, you can get an incredibly high return on investment through dividends only. Now, let’s say if you invest in Paychex back in Jan. 2012 at $30 a share. You hold it for ten years. And do you know what you’d enjoy today? - Ten years ago (2012): $30 per share - Current dividend per share: $3.56 per share At the current dividend per share of $3.56, you would earn 11.8% annual return on dividends only – virtually risk-free! As a bonus, your share would have seen about 310% gain from $30 to $123. Isn’t that nice? You can generate ridiculously high income from dividends that you could spend to upgrade your lifestyle… without selling a single share in Paychex. This means you still enjoy the share price appreciation. That’s Warren Buffett’s formula – his Coca-Cola investment generates such absurd returns. He collects about $640 million a year from dividends only on an original cost of $1.3 billion. Well, that’s a nearly 50% annual return from dividends only! And you can see Buffett’s 2019 dividends from Coke below: (Source: Berkshire Hathaway) Listen, can you find any risk-free investment with an annual return like that? That’s the power of investing and holding a wonderful company that pays out dividends, and you can have the same thing with Paychex. And I will tell you why Paychex will continue to prosper for another decade or so. Product stickiness: Paychex is deeply embedded into small- and mid-sized businesses’ operating systems. It handles payroll, retirement benefits, and insurance. These are such a vital part of any business because you can’t operate without payrolls. Going without Paychex would mean handling payrolls manually. That’s simply a nonstarter. Product stickiness is the reason why Paychex is a perfect stock to combat inflation. Earnings leverage: The beauty of a software business is how it can scale up without incremental cost. Besides the services aspect, the software can handle an increase from 10,000 to 100,000 customers without requiring more cash to operate. Paychex grew its revenue from $3.7 billion to $4.9 billion in the last four years – a 8% revenue CAGR. That’s not bad. But its cost of revenue grew slowly, leading net Income to expand by 11% CAGR. That’s the power of earnings leverage. If you can grow without incremental cost, your earnings can show incredible growth even on modest revenue growth of 10%. So, Paychex will not need an extraordinary amount of human energy to achieve a miracle. All it needs is a 7-10% revenue growth, and its earnings can see double-digit annual growth. Moreover, Paychex boasts an enviable profit margin of 30.45%. That’s right. We are not talking about operating margin excluding SG&A and other costs. This is the net income margin. That’s nearly unheard of! If we look at the operating margin, we have a tidy 40%. Plus, Paychex has an insane Return on Equity of 47%. It means if you put in one dollar into the business, it would generate $1.47 back. Bottom line: Paychex has a perfect balance of revenue growth and high return on equity. The stock price doesn’t rely on superhuman performance to maintain big earnings growth. Through shareholder returns and steady revenue growth, you can easily achieve 15-20% annual growth through dividends and share price appreciation with this stock. To think about it, even Bridgewater Associates, the world’s largest hedge fund, only achieved an 11.5% annual return. Simply said, Paychex is a wonderful business that you can own for a decade or longer. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](