The American economy is showing resilience with GDP increasing at a 2.4% annualized rate in Q2, consumer spending slowing from Q1, and a business investment boom underway. The Federal Reserve’s Personal Consumption Expenditures Index inflation rate is still high but slowed down. The economy is currently strong and moderating, raising hopes that a potential recession remains far from reality.
And with this recent positive economic data, businesses are not acting as if a recession is coming this year. However, a survey of business owners from Nationwide found that two-thirds of owners are expecting a recession in the next six months, and the latest report from NFIB’s Small Business Optimism Index found that businesses were anticipating a slowdown in consumer spending. So… the way they act and the way they think aren’t the same.
On the tech earnings side, two bits of interest.
Google Cloud has entered its era of profitability, generating a record operating income of $395 million during Q2 2023, compared to an operating loss of $590 million during the same quarter one year ago. This was achieved through strong sales growth, reducing the pace of hiring new employees, and momentum in artificial intelligence. Google Cloud’s Q2 2023 revenue of $8 billion was up 28% YoY, approximately four times faster than parent company Alphabet’s sales increase.
Microsoft’s Q4 2023 financial results show an 8% increase in revenue and a 20% increase in net income. Microsoft’s cloud, office, and server businesses continue to make up for a weaker PC market. Microsoft’s entire fiscal 2023 hasn’t been great for its Windows and devices revenue compared to fiscal 2022, with Windows OEM revenue dropping significantly for four quarters in a row.
Why do we care?
I went back to my 2023 predictions, and while I was more pessimistic than reality is proving, it does appear we’ll miss the recession. We may actually land the plane. I’m a planner, so it’s wise to anticipate both down and up conditions. Just note that there are a lot of up scenarios looking good here.
Because, note, Google Cloud is making money now. They’re making money. This is a big deal. And a driver is AI. Microsoft, too, seeing money on their AI and cloud initiatives. A great indicator of the market potential. Wonder why I’m focused here? The money.