Alphabet Inc. and Microsoft Corp. both reported results that missed Wall Street’s expectations on Tuesday, but not only did investors not rally, both actually saw their shares rise in after-hours trading.
Amid troubling economic signs, tech stocks have taken a hit so far this year, and fears of a slowdown among Big Tech names had Wall Street on edge this week. But the reactions to earnings misses on Tuesday afternoon show that the fears and declines so far this year have resulted in a lowered bar for even the biggest of Big Tech names.
missed both revenue and profit expectations and forecasts that its cloud business, Azure, will grow about 43% in the September quarter, amid fears of slowing cloud growth. While the four percentage point deceleration from the previous quarter’s growth rate may have led to sharp declines earlier, Microsoft stock jumped as soon as the forecast was given.
Google parent alphabet GOOGL,
reported a drop in earnings for the second straight quarter and told analysts on its conference call that a slowdown from ad buyers affected its second quarter. Still, Alphabet shares rose nearly 5% in after-hours trading.
“Against the weakened macro backdrop, Alphabet’s Q2 results were decent, with near-in-line revenue across all key business segments,” Baird Equity Research analyst Colin Sebastian wrote in a note to clients summarizing the general 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 it’s clear that each company has businesses slowing down sharply right now.
In Alphabet’s case, revenue at YouTube, a recent star, grew a scant 3% in the second quarter, compared with 14.3% growth in the first quarter, due to general pullbacks in advertiser spending and more competition from TikTok. Microsoft saw its PC business soften as the big PC boom of the pandemic is over. The advertising slowdown is also affecting its LinkedIn business, while Xbox business is slowing rapidly as the pandemic-driven surge in video games slows.
But these stocks aren’t facing the wrath reserved for some smaller competitors. Last week, social media company Snap Inc. SNAP,
raised more fears among investors about Internet ad spending, and the stock fell as the overall economy struggles with inflation, changing consumer patterns and higher interest rates.
Microsoft and Google were able 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 key industries. But make no mistake, there is a slowdown, and it’s affecting Big Tech, just maybe not to the extent that it will result in huge chunks being taken out of their gargantuan market caps — yet.