The Week Ahead (22-25 April): GOOGL, MSFT

With three of the next four weeks interrupted by bank holidays in the UK, British companies seem to have been rushing to get their March trading updates and financial results published. We’ve had a surprisingly busy few days of announcements from companies of all sizes. But it’s been nice to have something to talk about other than the relentless tariffs chatter from the US.

That’s likely to pick up again next week as the US tech companies start to announce their Q1 financial results.

We saw the first cold hard figures from the fallout this week when NVIDIA (NSQ:NVDA) announced that controls on the estimated $10bn of sales booked in China would add $5.5bn of costs. The company’s H20 processing chips have been in high demand from Chinese tech giants including Alibaba and Tencent and it had previously been suggested that tariffs and new policies wouldn’t impact these sorts of products. Nvidia executives are said to have been “blind-sided” by Donald Trump’s decision to clamp down on the export of H20s, which are now expected to be significantly more expensive to export. There are also fears that the company’s failure to deliver goods as originally planned could incur penalties.

Intel (NSQ:INTC), which is due to announce results on Thursday, has also told its Chinese customers that it will now require a license for exporting to China. And the tariff impacts go both ways. Intel is supplying customers in China and importing components manufactured in Chinese factories. In October the company announced a $300m expansion of its Chinese facilities.

And it isn’t just US and China-based companies which are feeling the pain of the fallout. Financial results from Dutch chipmaker ASML Holding NV (AMS:ASML), which were announced this week, showed that orders had fallen below expectations because of increased uncertainty brought on by the trade war.

For private investors it is important to try to look beyond the noise (and there is a lot of that at the moment). The big question is whether or not there is anything in the announcements which should impact decision making. Next week will be a good opportunity to take stock of the investment cases for some of these big companies with the most up to date numbers and outlook statements to hand.

Economic Calendar

Companies Reporting

Microsoft (NSQ:MSFT)

The investment case for Microsoft lies firmly in the future of artificial intelligence. Management has pinned its colours to the mast when it comes to AI. In a statement in January, Brad Smith, the company’s chair and vice-president wrote:

“As we look into the future, it’s clear that artificial intelligence is poised to become a world-changing GPT”

Executives have also made clear that America is the place for the company to be doing business. There’s almost certainly an element of politicking in the company’s “commitment to this country and our confidence in the American economy,” but regardless of the agenda, a commitment to spend $80bn this year on AI and the supportive cloud infrastructure is likely to stand Microsoft in good stead as AI usage becomes more prevalent.

This investment case is backed up by phenomenal fundamentals. Over the last five years, the company has delivered compound annual revenue growth of 14%, with expanding operating margins (which hit 45% at the last annual results) which have delivered an even faster acceleration in profits. Substantial cash inflows have been reinvested continually to support further growth. And with an average return on capital employed over 27% in the last five years, the company is generating mega-returns for the investment it makes.

Has political wrangling helped shelter MSFT from the fallout from tariffs? Maybe slightly. The company’s shares are down 4% in the last month but have outperformed the market.

As long as the AI narrative remains, I still have faith in the long term prospects for this All-American giant.

Alphabet (NSQ:GOOGL)

Alphabet is an investment company, funded by the rewards of a highly profitable marketing engine.

Google and YouTube are highly profitable and highly cash generative. In 2024, despite lower company expenditure on marketing initiatives, sales rose 14%. Cash inflows from operating activities were $125bn - 25% higher than the previous year.

For now, the destination for a lot of that cash is the company’s cloud business, but Alphabet also has its money in many other initiatives.

As long as there is still resilience from Google and YouTube (which we will find out next week), the long-term investment case seems solid to me.