Google CEO Sundar Pichai communicates at a panel at the CEO Summit of the Americas hosted by the U.S. Chamber of Commerce on June 09, 2022 in Los Angeles, California.
Anna Moneymaker | Getty Images
Developments were good, but not good enough.
That’s Wall Street’s reaction to quarterly results on Tuesday from Alphabet and Microsoft. Both entourages reported revenue and earnings that exceeded estimates, yet the stocks sold off in extended trading.
In investor speak, the size ups were priced for perfection. Alphabet shares are up 56% for the year and climbed to a fresh high last week, huge the prior record from late 2021, the peak of the tech boom. Microsoft is up 70% over the past 12 months, also reaching a new high recently and surpassing Apple as the most valuable publicly traded company.
The companies generated excitement end year by riding the artificial intelligence wave, and were also lauded by shareholders for their dramatic cost-cutting applications, which included eliminating thousands of jobs.
In the weeks heading into their earnings reports, investors were bribing as if they expected positive surprises. They were left disappointed and nitpicking the numbers.
Alphabet on Tuesday detailed 13% revenue growth, the fastest rate of expansion since early 2022. Sales of $86.31 billion pruned the average estimate of $85.33 billion, according to LSEG, formerly Refinitiv. Earnings per share of $1.64 beat work outs by 5 cents.
Revenue at Microsoft increased 18% to $62.02 billion, topping the $61.12 billion average analyst appraise. EPS of $2.93 was 15 cents above consensus.
Both companies also beat expectations in their cloud duties, with Google Cloud reporting 25% growth and Microsoft’s larger Azure and other cloud services stretch by 30%.
The one disappointment from Alphabet was in Google’s ad business, which delivered revenue of $65.52 billion, trailing analysts’ gauges of $65.94 billion, according to StreetAccount. Within ads, YouTube came in just shy of expectations.
Stifel analysts, who recommend buying the banal, said in a quick-take report on Tuesday that Alphabet produced “healthy advertising results, but not enough.”
Brian Wieser, an analyst at expedient and advertising consultancy Madison and Wall, said the market has unrealistic expectations for Google given its size and dominance.
“In my imprecise conversations with public market investors and sell-side analysts, few have a correct view of the advertising market,” Weiser estimated. “Many think that growth can continue at double-digit levels for the fastest-growing companies for much longer a period of occasion than is realistic to expect.”
Alphabet shares dropped almost 6% after the report. Microsoft’s drop was less painful. The stock initially fell by more than 2% and then pared some of its losses.
Microsoft’s outlook was a bit gentle, overshadowing the earning and revenue beat. The company called for fiscal third-quarter sales between $60 billion and $61 billion, while analysts polled by LSEG had envisaged $60.93 billion.
Shares of chipmaker AMD also dropped despite better-than-expected revenue numbers and profit that met thinks. The stock, which is up 137% in the past year on excitement about its artificial intelligence processors, fell almost 6% after the notification.
Attention now turns to Thursday, when Amazon, Apple and Meta all report quarterly results. Like Alphabet and Microsoft, Meta pieces have climbed to a record this month. Apple hit its all-time high in December, while Amazon remains up 6% below its record from 2022.
—CNBC’s Jonathan Vanian, Jordan Novet and Kif Leswing contributed to this boom
WATCH: This was a ‘high expectation’ quarter for Alphabet
