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Tech Giants Miss Market Expectations Despite Strong Results

2024.01.31

 

Key Takeaways

  • Alphabet and Microsoft post revenue and earnings above estimates but see stock prices fall, reflecting Wall Street’s high expectations.
  • Investors now await quarterly results from Amazon, Apple, and Meta, with high market anticipation.

Market Reaction to Tech Earnings

Wall Street’s reaction to Alphabet and Microsoft’s latest quarterly results highlights a classic case of good not being good enough. Despite both tech giants surpassing revenue and earnings estimates, their stocks faced a sell-off in extended trading. This outcome points to the high expectations baked into their stock prices, which have seen significant gains over the past year.

 

Alphabet and Microsoft’s ride on the artificial intelligence wave and commendable cost-cutting efforts, including job cuts, have been key drivers of their recent success. These strategic moves generated considerable excitement last year, pushing their shares to record highs. However, despite being positive, the latest earnings reports fell short of investors’ heightened expectations.

Dissecting the Financials

Alphabet’s 13% revenue growth marked its fastest expansion since early 2022, with sales surpassing average estimates. Microsoft also reported an 18% increase in revenue, beating expectations. Both companies’ cloud businesses showed impressive growth, but Alphabet’s advertising revenue, particularly from YouTube, slightly missed the mark.

 

Analysts acknowledge Alphabet’s solid advertising results but note they weren’t enough to satisfy market expectations. The advertising market’s growth potential is often overestimated, leading to unrealistic projections for dominant players like Google. This mismatch in expectations and reality is reflected in Alphabet’s 6% stock price drop post-earnings release.

Microsoft’s Mixed Signals

Microsoft’s slightly weaker-than-expected outlook for the fiscal third quarter overshadowed its earnings and revenue beat. This cautious forecast contributed to an initial stock price drop, though the decline was less severe than Alphabet’s.

Wider Tech Sector Performance

The broader tech sector’s response to earnings announcements remains a point of interest. AMD’s stock also experienced a decline despite meeting profit estimates, indicating a trend of high market expectations across the tech industry.

 

The focus now shifts to Amazon, Apple, and Meta, all set to report their quarterly results shortly. Like Alphabet and Microsoft, these companies have seen their shares reach record highs recently. Investors and analysts will be closely watching to see if these companies can meet or exceed the lofty expectations set by the market.

 


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