In a tale of high expectations and the reality of Wall Street, both Alphabet and Microsoft reported impressive quarterly results on Tuesday, only to face a sell-off in extended trading. Despite exceeding revenue and earnings estimates, the stocks of these tech behemoths were seemingly priced for perfection, leading to a less enthusiastic market response.
Alphabet, with shares up 56% for the year, reported a 13% revenue growth, the fastest expansion rate since early 2022. The $86.31 billion in sales surpassed the estimated $85.33 billion, and earnings per share of $1.64 exceeded estimates by 5 cents. However, disappointment lingered in Google’s ad business, with revenue of $65.52 billion falling short of analysts’ expectations.
Microsoft, riding a 70% surge in the past 12 months, posted an 18% increase in revenue to $62.02 billion, outperforming the average analyst estimate of $61.12 billion. The company’s earnings per share of $2.93 also beat consensus by 15 cents. Both Alphabet and Microsoft exceeded expectations in their cloud businesses, with Google Cloud reporting 25% growth and Microsoft’s Azure and other cloud services expanding by 30%.
Despite the positive numbers, Alphabet shares saw a nearly 6% drop after the report, while Microsoft’s dip was less severe. Investors, perhaps influenced by high expectations and the stocks’ remarkable performance over the past year, found themselves nitpicking the numbers and expressing disappointment.
Analysts, such as those from Stifel, acknowledged Alphabet’s “healthy advertising results” but noted that they fell short of what the market seemingly anticipated. Brian Wieser, an analyst at Madison and Wall, commented on the unrealistic expectations for Google in the advertising market, cautioning that the market may have an inflated view of growth sustainability for dominant companies like Alphabet.
As the tech earnings season unfolds, attention now turns to Thursday when Amazon, Apple, and Meta are set to report their quarterly results. The performances of these tech giants will be closely watched as investors gauge the overall health and trajectory of the industry.
In the ever-evolving world of tech, even stellar results may not be enough to satisfy the voracious appetite of investors betting on perpetual growth. The coming days will reveal whether the recent sell-off is a momentary blip or indicative of a broader trend in the tech sector.