US GDP Growth Was Slower Last Quarter on Soft Consumer Spending

The U.S. economy grew at a lackluster 1.3% annual pace in the first three months of the year, revised figures showed, largely because of softer consumer spending that could herald a broader slowdown in the economy. The increase in gross domestic product, the official scorecard for the economy, was the smallest in almost two years. Previously the government reported that GDP had expanded at a 1.6% rate in the first quarter. The biggest contributors to the tepid GDP report were a wider trade deficit and lower production due to unsold goods or inventories.

The revised report also showed that consumer spending, the main driver of the economy, grew at a 2% pace instead of 2.5% as previously indicated. Household spending had risen at a rate of more than 3% in the prior two quarters. However, GDP could partly bounce back in the second quarter. The latest forecasts indicate the economy may have grown 3% or more, similar to the last two quarterly readings of 2023. In terms of the US stock market, the S&P 500 index maintains a stable upward trend, and we expect the S&P 500 index to fluctuate between 5,100-5,400 points.

In terms of industry, as customers pay more and more attention to artificial intelligence (AI) platforms, Microsoft and Amazon’s market share growth leads the market.

Amazon(AMZN.US)Net sales increased by 13% YoY to US$143.3 billion in 1Q24. The latest sign that the company’s cost-cutting measures and focus on efficiency is bolstering its bottom line. Operating income soared more than 200% to US$15.3 billion, far outpacing revenue growth. Net income also more than tripled to US$10.4 billion.

Sales at AWS accelerated 17% in Q1 to US$25 billion, exceeding Wall Street’s forecast. For the past year, growth in AWS has slowed, as businesses trimmed their cloud spend. But the Mgt observed cost optimizations tapering off, and they indicated that demand for generative artificial intelligence can be a boon for its cloud business. Advertising unit saw sales surge 24%, just ahead of consensus estimates, which grew faster than retail or cloud segment and become an increasingly important profit driver for Amazon. Amazon expects a continual jump in topline for the second quarter but at a more measured pace. Revenue in Q2 is expected to be in the US$144 billion to US$149 billion range, representing growth of 7% to 11%. It is recommended to buy at US$171.20, target at US$193.40, and stop loss at US$159.20.

Microsoft(MSFT.US)’s Q1 Revenue amounted to US$61.9 billion and increased 17% YoY. Operating income increased by 23% YoY to US$27.6 billion. In terms of business segment, Microsoft’s Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance and GitHub, generated US$26.71 billion revenue, up 21% YoY. Revenue from Azure and other cloud services grew 31%, compared with 30% in the previous quarter. Inside of the Azure growth, 7 percentage points were related to AI, up from 6 percentage points of impact in the previous quarter.

The Productivity and Business Processes unit containing Office productivity software, LinkedIn, Dynamics customer-relationship management software generated US$19.57 billion in revenue, up around 12%. Microsoft’s More Personal Computing revenue totaled US$15.58 billion. Revenue from the segment, which includes the Windows operating system, Surface PCs, video games and search, increased approximately 18% and was above the consensus of US$15.08 billion. Revenue from Xbox content and services was up 62%, thanks to a bump from the US$75 billion acquisition in October of game publisher Activision Blizzard, including its popular Call of Duty titles.
It is recommended to buy at US$402.70, target at US$455.00, and stop loss at US$374.50.