Wall Street greeted the quarterly results from Alphabet and Microsoft with a mixture of approval and disappointment, despite both tech giants reporting revenue and earnings that surpassed expectations. The stocks of both companies experienced a sell-off in extended trading, indicating that investors had set exceptionally high standards for their performance.
Alphabet’s shares, which have surged 56% this year, reached a new peak recently, continuing their upward trajectory from late 2021. Similarly, Microsoft’s stock has climbed 70% over the past 12 months, also hitting a fresh high recently and surpassing Apple as the most valuable publicly traded company.
Investors had anticipated positive surprises from both companies, given their strong performance last year fueled by the artificial intelligence wave and aggressive cost-cutting measures, including significant job cuts.
Alphabet reported a robust 13% revenue growth, its fastest expansion rate since early 2022, with sales reaching $86.31 billion, surpassing the average estimate of $85.33 billion. Earnings per share of $1.64 also beat estimates by 5 cents. Meanwhile, Microsoft saw an 18% increase in revenue to $62.02 billion, exceeding the $61.12 billion average analyst estimate, with earnings per share of $2.93, surpassing consensus by 15 cents. Both companies also outperformed expectations in their respective cloud businesses, with Google Cloud reporting 25% growth and Microsoft’s Azure and other cloud services expanding by 30%.
However, Alphabet fell short in its Google ad business, with revenue of $65.52 billion trailing analysts’ estimates of $65.94 billion. Stifel analysts, while still recommending the stock, noted that Alphabet’s advertising results were “healthy” but not enough to meet high expectations. Brian Wieser, an analyst at Madison and Wall, pointed out that the market’s expectations for Google may be unrealistic given its size and dominance in the advertising market.
Following the earnings report, Alphabet shares dropped nearly 6%, while Microsoft’s decline was less severe, initially falling by more than 2% before recovering some losses. Chipmaker AMD also experienced a drop in its stock despite better-than-expected revenue and meeting profit estimates, with shares falling almost 6% after the announcement.
Investor focus now shifts to Thursday’s quarterly results from Amazon, Apple, and Meta. Like Alphabet and Microsoft, Meta shares have reached record highs this month, while Apple hit its all-time high in December, and Amazon remains below its 2022 peak by about 6%.
