Wednesday, July 26, 2023

"Microsoft Vs. Alphabet Post-Earnings Showdown: Cloud, AI to Shape H2 Performance" (MSFT; GOOG)

From (also on blogroll at right),  July 26:

  • Alphabet and Microsoft posted strong earnings, but the market's response varied.
  • Alphabet's cloud division grew by 28%, while Microsoft's Azure had slower growth at 26%.
  • Both companies are focusing on AI advancements, with Microsoft's operating income increasing by 21% and Alphabet investing in AI features and TPU accelerator chips.

Last night, both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) delivered the solid earnings numbers bulls were counting on. While the Bill Gates-founded giant topped analysts’ EPS expectations by 5.5%, the Google parent company did it by a slightly wider margin of 7.3%.

However, despite the seemingly favorable outlook for both companies, the market’s response to each of the reports was starkly divergent.

Alphabet popped roughly 6% in after-hours trading as Microsoft slumped by 4%. Given the sizes of the companies, the results led the overall indexes to trade on a negative note ahead of the Fed’s big announcement later today.

Obviously, one of the reasons for the market’s reaction is sheer price performance this year. Amid H1’s AI buzz, the Google parent company’s stock experienced slower growth expectations from investors, setting it apart from other major tech giants, trading further away from its 52-week high than the competition.

Alphabet Weekly Chart
Alphabet Weekly Chart
Microsoft, on the other hand, hit an all-time high just last week and looked poised for a sell-off going into earnings.
Microsoft Weekly Chart
Microsoft Weekly Chart

Moreover, the Mountain View, California-based search engine behemoth also announced that its CFO, Ruth Porat, will assume the newly established position of President and Chief Investment Officer of the company. Investors positively received the news, as it portrayed the message that despite the positive numbers in Q2, the company aims to remain committed to financial efficiency in the new growth cycle after last year’s slump.

However, as we delve deeper into both earnings reports from last night, the question that pops into our minds is, “Is the market’s reaction just a spur-of-the-moment thing, or has the market mispriced these companies?”

A closer look into the reports can help us answer that question.