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April 26, 2024

We have a couple of very solid earnings reports that should help shares move higher today, provided we don’t get a major curveball with the PCE inflation report out at 8:30 AM ET.

Earnings Updates: MSFT, FTAI

We have a couple of very solid earnings reports that should help shares move higher today, provided we don’t get a major curveball with the PCE inflation report out at 8:30 AM ET.

On the PCE front ... core PCE is expected to increase 0.3% month over month in March, with the year-over-year rate dipping to 2.7% from 2.8%. However, there’s some new risk of an upside surprise given the hot Q1 reading in the first read of Q1 GDP yesterday suggested core PCE increased at an annualized rate of 3.7% versus the 3.4% expected.

On to our stocks ...

FTAI Aviation (FTAI) has been a rock in our portfolio and that performance should continue after the company’s solid Q1.

Revenue in the quarter was $326.7 million (+11.6%) and beat expectations by $24.6 million while EPS was $0.31, $0.06 shy of consensus. However, adjusted EBITDA of $164 million was $11 million ahead of expectations. The EBITDA beat was the result of 72 module sales in Q1, up from 61 in the previous quarter (Q4 2023) and 39 in the year-ago quarter (Q1 2023). The company will pay a dividend of $0.30 per share on March 31.

FTAI also announced a new agreement with LATAM that includes a sale and lease transaction for over 30 aircraft. This will include both CFM56 and V2500 engines and shows progress in building out the V2500 MRE business.

Management will host the Q1 earnings conference call this morning at 8:00 AM ET. Expecting to keep at buy. BUY

Microsoft (MSFT) shares slipped yesterday morning after the U.S. GDP report, but the Q3 fiscal 2024 earnings results (out after the closing bell) show the company is still a beast and should get the stock moving in the right direction again.

Revenue was $61.86 billion (+17%) and beat by a cool billion while EPS was $2.94 (+20%) and beat by $0.12.

There are lots of details that could be discussed with a company operating at Microsoft’s scale, but the most important takeaway is that Microsoft continues to attract a growing share of IT spending budgets, and Generative AI revenue is growing (the same can’t be said at many other companies).

The proof points here are Commercial Bookings growth of 31% (strongest in six quarters) and Azure growth picking up to 31% too. On Azure, Generative AI contributed to 7% of that growth (non-AI Azure accelerated from 22% last quarter to 24% in Q3) DESPITE demand exceeding supply. That means Microsoft will continue to spend on AI infrastructure, which could be seen as a benefit to infra companies, like portfolio holding Vertiv (VRT).

If there is one complaint, and it’s a small one, it’s that Copilot revenue was underwhelming. But this product was just launched, and management talked about several customers buying over 10,000 Copilot seats. So it seems there is more to come here.

Big picture, Microsoft remains the dominant company in AI, with plenty of other sweeteners to boot. Price target increases are pouring in. BUY

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Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.