Alphabet Inc. and Microsoft Corp. both reported results that missed Wall Street’s expectations on Tuesday, but not only did investors not melt down, both actually saw their shares rise in after-hours trading.
Amid troubling economic signs, tech stocks have been battered so far this year, and fears of a slowdown among Big Tech names had Wall Street on edge this week. But the reactions to the earnings miss on Tuesday afternoon show that the fear and slowdown so far this year has resulted in a lowered bar for even the biggest of the Big Tech names.
missed both revenue and profit expectations, forecasting its cloud business, Azure, to grow by around 43% in the September quarter, amid fears of slowing cloud growth. While a four percentage point slowdown from the previous quarter̵[ads1]7;s growth rate may have led to sharp falls earlier, Microsoft shares jumped as soon as the forecast was given.
Google’s parent alphabet GOOGL,
reported a revenue decline for the second consecutive quarter, and told analysts on the conference call that a decline in ad buyers impacted the second quarter. Still, Alphabet shares rose nearly 5% in after-hours trading.
“Against the weakened macro backdrop, Alphabet’s second-quarter results were decent, with near-term revenue across all key business segments,” Baird Equity Research analyst Colin Sebastian wrote in a note to clients, summarizing the overall outlook. view on Wall Street that things were not yet as bad as feared.
Much like the relief rally seen by Meta Platforms Inc. META,
shares three months ago, but this is a case of numbers that, while good enough to avoid deflating their shares, still shouldn’t be seen as “good.” Both companies warned about the macro economy, and each clearly has businesses slowing down sharply right now.
In Alphabet’s case, revenue at YouTube, a recent star, rose a scant 3% in the second quarter, compared with 14.3% growth in the first quarter, due to a general pullback in advertiser spending and more competition from TikTok. Microsoft saw its PC business soften as the pandemic’s PC boom is over. The decline in advertising is also affecting LinkedIn business, while Xbox business is slowing rapidly as the pandemic-driven surge in video games slows.
But these stocks do not face the wrath reserved for some smaller competitors. Last week, social media company Snap Inc. SNAP,
raised investor fears about Internet advertising, and the stock plunged as the general economy battles inflation, changing consumer patterns and higher interest rates.
Microsoft and Google managed to avoid the same fate, although it is possible that it will just take longer for the slowdown to actually affect companies so large, and with dominant positions in important industries. But make no mistake, it’s a downturn, and it’s affecting Big Tech, just maybe not to the extent that it will cause large chunks of their giant market caps to be stripped — yet.