Technology
Wednesday, January 31st, 2024 4:19 pm EDT
Key Points
- Stocks Priced for Perfection: Despite both Alphabet and Microsoft reporting quarterly results that exceeded estimates in terms of revenue and earnings, Wall Street reacted with disappointment as the stocks sold off in extended trading. The stocks were considered to be priced for perfection, with Alphabet shares rising by 56% for the year and Microsoft increasing by 70% in the past 12 months, surpassing Apple as the most valuable publicly traded company.
- High Expectations and Investor Disappointment: The companies, which garnered excitement in the previous year by capitalizing on the artificial intelligence wave and implementing significant cost-cutting measures, faced heightened investor expectations leading up to their earnings reports. However, the results, while strong, did not meet the elevated expectations, leaving investors disappointed and leading to a detailed scrutiny of the numbers.
- Strong Financials and Cloud Business Performance: Both Alphabet and Microsoft reported robust financials, with Alphabet experiencing a 13% revenue growth, the fastest since early 2022, and Microsoft’s revenue increasing by 18%. Additionally, both companies surpassed expectations in their respective cloud businesses, with Google Cloud reporting 25% growth and Microsoft’s Azure and other cloud services expanding by 30%. Despite these positive aspects, Alphabet’s disappointment came from Google’s ad business, particularly with YouTube falling just short of expectations. As a result, Alphabet shares dropped almost 6%, while Microsoft’s drop was less severe, initially falling by more than 2% and then recovering some losses.
Quarterly results from Alphabet and Microsoft, both surpassing revenue and earnings estimates, faced a lukewarm response from Wall Street. The stocks experienced a sell-off in extended trading, revealing that investors, perhaps expecting positive surprises, had priced them for perfection. Alphabet shares, up 56% for the year, reached a new high recently, with Microsoft boasting a 70% increase in the past 12 months, surpassing Apple as the most valuable publicly traded company. Both companies, which capitalized on the artificial intelligence wave and implemented significant cost-cutting measures, left investors disappointed despite reporting strong growth. Alphabet achieved a 13% revenue increase, the fastest since early 2022, while Microsoft’s revenue rose by 18%. However, Alphabet fell short in Google’s ad business, causing a nearly 6% drop in shares. Microsoft’s outlook, slightly below expectations, contributed to a less severe stock drop. Analysts suggest that unrealistic expectations and a lack of understanding of the advertising market may be behind the market’s reaction. As attention turns to upcoming reports from Amazon, Apple, and Meta, the tepid response to Alphabet and Microsoft raises questions about the tech sector’s high expectations and potential market shifts.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/30/wall-street-punishes-alphabet-and-microsoft-despite-earnings-beats-.html
