CHRIS VERSACE: Good morning, Action Alerts Plus subscribers. In today's rundown, I'll tackle some of your latest questions. But first, let's recap June quarter results that were out last night from both Alphabet and Microsoft, as well as our thoughts and responses.
Now, both companies reported better than expected June quarterly results. Cloud remained strong for both. And AI, as you can imagine, was a hot topic, and one that painted with promise on both earnings calls. More particularly at Alphabet, advertising revenue remains strong and its cloud business is becoming profitable. Another positive.
However, I find that when we compare contrast these two earnings reports, and more importantly, the forward comments, we start to see some important differences. One big area is on the outlook for spending. While Alphabet signaled it will continue to have a tight and more focused approach to spending, Microsoft shared it is ramping spending to meet AI demand. Something that will weigh on its margins in the coming quarters. And as we know, when we see margins being pressured or at least restrained, that restricts the amount of growth that can fall to the bottom line.
So while we raised our price targets for both, that spending difference explains the why behind our keeping Google a two rating for the portfolio and Microsoft shares keeping their three rating. Now, are we going to look to revise these ratings? We will over time. But let's talk about what we'll need to see.
First, with Google, we'll want to see the shares pull back to below the 120 level. They're trading higher today and that's going to remove some of the upside to our revised price target. But a low 120, we see the risk reward compelling for Alphabet shares. And for Microsoft, yes, we continue to like its cloud and AI positioning. But to get more aggressive in the shares, we'll want to see its spending efforts start ramping down so we can see margin leverage alongside expected revenue growth.
That, in turn, will accelerate EPS and cash flow growth. Now, over to a name reporting after today's closing bell. Given the ongoing extreme heat and climate change headlines, we have a member wondering if potential water shortages could be a problem for American Water Works. Very topical. I totally understand the question. I think when we step back we have to remember a few things.
One, American Water Works footprint is the largest across the US. It's not clustered just in any one or two particular states. So that wide exposure should lessen the impact of, we'll call, "targeted water restrictions". But we also have to remember that revenue tends to be volume times price. So we are in the seasonally strong part of the year. We will see volume for American Water Works rise.
But we also have to remember the rate increases that have been put in place over the last 12 months. Those two factors coming together should drive revenue growth for American Water Works at a time when it is most seasonally strongest for its core water business. So we continue to like American Water Works here.
We also want to talk about our recent exits. And by that, I mean comparing and contrasting what we did with Ford compared with Verizon. Now, Verizon we had been targeting that we were really starting to rethink the need to have Verizon shares in the portfolio because we added them when we were concerned about a harder landing for the economy. And remember, too, that while we were targeting this, all of a sudden there was a major shift in the narrative about lead pipes and what that potential risk would do. A huge unknown.
So from our perspective, at that point in time the ability for us to return to the cost basis price for Verizon shares looked incredibly challenging. So we opted to exit that position and instead funnel the proceeds back into areas that have better growth prospects, including the trade we did earlier this week with Applied Materials. And so far, that is panning out rather nicely.
Now with Ford, we have been increasingly concerned about not only the company's competitive position, but the margin profile. And as we've shared in our Alerts over the last few weeks, the outlook for the back half of the year profits laid out by the company in March showed little profit growth. But what have we seen since then? Tesla got more aggressive, cutting prices with EVs, with Elon Musk saying that he will continue to do so. That will obviously pressure potential margins at Ford, which are already coming under some other weight of its business transformation.
And then yesterday, we learned that UPS and the Teamsters signed a new-- or are working on, I should say-- a new 5-year contract that really ramps the cost to UPS. Now, we know that labor has been tight across the US and this is allowing for wage pressures. We've seen this over the last several quarters, that continued tightness runs the risk that as Ford and the other big three automakers negotiate with the UAW that they, too, will face far greater cost increases than might have been previously expected, pretty much mimicking what we saw with UPS.
To us, that really challenges the company's ability to deliver profit improvement in the coming quarters. Facing that headwind, we opted to throw in the towel on Ford, book the profits that we had, which were north of 40% in the position, and we'll move on. As we've shared with you, we do have our shopping list. We even added Qualcomm to that shopping list in the near term as well. And over the coming days and coming weeks, we expect to use some of the return capital to pick up some of those positions, which also hopefully might include Morgan Stanley, as well as McDonald's.
And we have a new member wondering if it's the right time to start a position in Axon or if they should wait for earnings on August 8. Great question. We actually picked up some Axon shares for the portfolio earlier this week. And I would say the next catalyst that we are watching-- while that August 8 report date is important, we are really watching what Motorola Solutions has to say next week when they report. If you remember back earlier this year, it was the acknowledgment by Motorola Solutions that federal, state, and local spending on public safety equipment was indeed ramping. That was the catalyst that led us to upgrade Axon shares, boost our price target, and the shares took off.
I suspect that when Motorola Solutions reports next week, it's going to say pretty much the same thing. So with that, that'll be today's rundown. I'll be back tomorrow with our reaction to this afternoon's Fed decision and more earnings from our holdings. Have a great day.