Microsoft and Alphabet were the first among the Magnificent 7 to report their financial results, with their shares declining by 0.23% and 5.84%, respectively, during after-market hours trading.
Big tech stocks have performed exceptionally well since 2023, largely propelling the stock market forward. Microsoft saw a 65% increase from a year ago, recently reaching its $3T market cap and surpassing Apple to become the largest stock globally. Alphabet’s performance was also impressive, with its stock climbing 53% from the previous year.
It is reasonable for them to take a break, rather than casting a gloom and doom outlook when their shares dip following the latest earnings reports.
Moreover, their results are far from lackluster. Alphabet reported double-digit revenue growth across all its business segments, except for its Google Network segment.
This marks an acceleration from the previous quarter, indicating that ad spending is rebounding more swiftly.
However, this was still not enough to meet analysts’ expectations, as the overall ad revenue of $65.52 billion fell short of the forecasts by a mere $65.94 billion, or a difference of less than 1%. Honestly, this minor shortfall hardly justifies a 6% plunge in share price.
In fact, I believe the outlook for Alphabet is even more promising. Ad revenue is increasing at a faster rate, the company is becoming more efficient following a series of layoffs, and it is investing in AI to fuel new growth areas. Should the share price fall below $135, it would present a buying opportunity.
As for Microsoft, its revenue grew 18% from a year ago, while net profits saw an impressive 33% increase!
This growth was primarily driven by Microsoft Cloud, where revenue surged to $33.7 billion, marking a 24% year-over-year increase, as reported by Amy Hood, Microsoft’s CFO.
The AI offerings within Azure have become a significant draw for its cloud services. Microsoft now boasts 53,000 Azure AI customers, with one-third of them being new to Azure in the past year, as stated by CEO Satya Nadella during the earnings call.
However, the impact of AI on Bing was less pronounced, with little significant contribution to its revenue growth.
Another notable revenue jump was in its gaming unit, Xbox, which saw a 61% increase in revenue. This leap was largely due to the inclusion of Activision Blizzard’s business following the acquisition’s completion.
So, where did Microsoft fall short? It was in its guidance. Microsoft projected fiscal third-quarter revenue to be between $60 billion and $61 billion, or $60.50 billion at the midpoint. Analysts had expected $60.93 billion. Again, this discrepancy seems to be nitpicking at minor details.
The encouraging results from these two tech giants suggest that the recent pullback in their share prices is more a reflection of their significant run-up than any fundamental weakness. It appears that investors are scrutinizing details to justify selling. However, the long-term health of their businesses appears to remain robust, underscoring their solid foundations and promising outlooks. A healthy correction could provide opportunities for those looking at the bigger, long-term picture.
