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Opinion: Google and Microsoft’s earnings show the bar has been lowered for Big Tech

Opinion: Google and Microsoft's earnings show the bar has been lowered for Big Tech
Written by boustamohamed31

Alphabet Inc. and Microsoft Corp. both reported results that missed Wall Street’s expectations on Tuesday, but not only did investors not melt, but both actually saw their shares rise in after-market trading.

Amid troubling economic signs, tech stocks have tumbled so far this year and fears of a slowdown among big tech names have sent Wall Street into a tailspin this week. But reactions to Tuesday afternoon’s earnings miss showed that fears and declines so far this year have lowered the bar for even the biggest names in big tech.

Microsoft
MSFT,
-2.68%

missed both revenue and profit expectations and predicted that its cloud businessAzure, will grow about 43% in the September quarter, amid fears of slowing cloud growth. While a four percentage point slowdown from the previous quarter’s growth rate may have led to sharp declines in the past, Microsoft shares jumped immediately after the forecast was provided.

Google Parent Alphabet
Google
-2.32%

Google
-2.56%

reported a drop in profit for the second straight quarter, and told analysts on its conference call that a slowdown in ad buyers impacted the second quarter. Still, Alphabet shares rose nearly 5% in after-hours trading.

“Against the weakening macro backdrop, Alphabet’s second-quarter results were decent, with revenue close to domestic across all key business segments,” Colin Sebastian, an analyst at Baird Equity Research, wrote in a note to clients, summarizing Wall Street sentiment. that things are not yet as bad as they feared.

Similar to the relief seen by Meta Platforms Inc.
META
-4.50%

stock three months ago, however, this is a case of numbers that, while good enough to avoid a downgrade in their stock, still shouldn’t really be seen as “good.” Both companies warned about the macro economy, and clearly each company has a business that is slowing sharply right now.

In Alphabet’s case, revenue at YouTube, a recent star, rose just 3% in the second quarter, compared with 14.3% growth in the first quarter, due to an overall pullback in advertiser spending and greater competition from TikTok. Microsoft saw its PC business soften as the great PC boom of the pandemic came to an end. The advertising slowdown is also affecting its LinkedIn business, while its Xbox business is slowing rapidly as the pandemic-fueled surge in video games fades.

But these stocks haven’t faced the wrath reserved for some smaller rivals. Last week, social media company Snap Inc.
I click
-3.22%

raised more fears among investors about the cost of Internet advertising, and its stock fell while the economy as a whole struggles with inflation, changing consumer patterns and higher interest rates.

Microsoft and Google managed to avoid the same fate, though it’s possible that it just took longer for the slowdown to affect such large companies with dominant positions in important industries. But make no mistake, there is a slowdown, and it’s affecting Big Tech, but maybe not to the point where it’s taking big chunks out of their huge market caps — yet.

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