Wedbush Managing Director and Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss Microsoft laying off 10,000 employees, its plans for AI and ChatGPT, and its efforts to complete its deal with Activision.
Video Transcript
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SEANA SMITH: Taking a look at Microsoft. The tech giant announcing plans to lay off about 10,000 workers. Shares, though, still under pressure this afternoon. The final hour trading off just over 1%.
We want to bring in Dan Ives, Wedbush Managing Director and Senior Equity Analyst. Dan, it’s great to see you here. So taking a look at the market’s reaction. It doesn’t look like the Street is as excited as maybe we were anticipating it to be, following these large layoffs. What did you make of the news?
DAN IVES: Look, I think it was a rip the Band-Aid off moment from the Dell and Microsoft. And we’re seeing it across tech. These companies were spending like 1980s rock stars, at a pace that was unsustainable. You’re starting to see demand soften.
I view it as a pro-active, smart move that we’re going to see across tech. So ultimately, I think as we go into earnings, this is going to be a positive that really preserves margins.
DAVE BRIGGS: How does it change your view, if at all, Dan, of the stock? And do you think there are more layoffs to come from Nadella?
DAN IVES: Yeah, there could be some more layoffs. But really, they’re gonna double-down on cloud. They’re gonna be aggressive on innovation. We’ve seen with– you know, in terms of OpenAI and some other technology partnerships. And this is a company that is gonna be into left lane. They’re not gonna be in the right way and going 45 miles an hour.
You know, Dell is gonna be aggressive and spend in, I think, higher in areas where strategically that’s where Microsoft’s going to be for the coming years. But nonstrategic, that’s where they’ve cut costs. And I think it’s a smart poker move for Nadella to do this sooner rather than later.
SEANA SMITH: Dan, what is that normalized growth look like? Because Nadella said that he expects, quote, “some amount of normalization” in demand following that massive surge that we got during the pandemic. So as we look out to the rest of 2023 into 2024, 2025, what are those growth numbers more realistically look like?
DAN IVES: And when you take a step back from Microsoft, we’re still less than 50% penetrated on the cloud. So I think we’re just starting to go into, I will say, fourth, fifth inning of cloud. I mean, this could be overall from Azure growth, 30%, call line the sand. I think bears would say that it’s gonna be low to mid-20s. And I think that’s really the sort of setup going into earnings.
And then you take this in a 2 and 1/2%, 3% IP spending environment. Still, significant growth that you’re gonna see from Microsoft, from Jassy and AWF, from GCP and others. And I think that’s what’s important here is that cloud is gonna be a pillar of strength, despite the dark economic storm that we’re seeing.
DAVE BRIGGS: Dan, I’m an admitted ChatGPT fanboy. How significant is that in terms of the investor story? Does it play into the cloud?
DAN IVES: Oh, yeah, I think right now Microsoft is the best AI play out there. I mean, even when you look at some of their strategy from get to– you look at ChatGPT. I think that is just a massively smart investment here. Because Microsoft, they’re looking at this as what they can really put around their Redmond ecosystem, from Azure, from Office 365, to the consumer point.
That’s why the strong are going to get stronger during this downturn. And Microsoft learned, mid-90s Gates during the antitrust battles, basically stopped investing in terms of social, mobile, and others. Now, Dell is not gonna make the same mistake, which is why I view Microsoft as a winner here, despite many yelling fire in a crowded theater.
SEANA SMITH: Dan, what about M&A? We have to talk about the deal to buy Activision. We know FTC trying to block that deal. Are you still confident that deal does get through?
DAN IVES: Yeah, I mean, that’s obviously a “Game of Throne” battle versus FTC. But I believe Microsoft does ultimately become victorious there in terms of– that’s why they’re not sort of backing down in terms of going after Activision. That’s a key asset.
And I believe that there’s gonna be more M&A from Microsoft and from others in big tech. And this is something that everyone in big tech’s watching because, you know, if Microsoft wins this deal, I think that really starts to, you know, open the spigot in terms of potential M&A across tech.
DAVE BRIGGS: Meanwhile, the next two quarters, how do you characterize the road ahead for big tech?
DAN IVES: Look, I think most investors, from a whisper expectation, they’re expecting 8% to 10% cuts relative to guidance. So I think whisper numbers are already there in terms of, you know, what’s gonna happen with guidance where you’ll have a pretty significant slowdown that you’ll factor in. But I think Street’s looking past. They’re looking past the next quarter to what does second half look like? What does 2024 look like?
And that’s why I think investors have learned from 2002, from 2009, and I think today, you know, despite, obviously, all the negative headlines, this really is gonna create what’s the next growth cycle. But I believe cloud cybersecurity and some of the big tech holds up better than expected. We believe tech stocks are up 20% this year. And I think FAANG and big-cap tech could be up more than that.
SEANA SMITH: More than 20%.
DAVE BRIGGS: Wow.
SEANA SMITH: All right, we will see what the next 11 and 1/2 months hold. Dan Ives of Wedbush, thanks so much.
DAN IVES: Thank you.
