Wall Street’s assessment of the quarterly results of Alphabet and Microsoft indicated that the numbers were good, but not up to par with investors’ high expectations. Both tech giants reported impressive revenue and earnings that surpassed estimates. However, the stocks experienced a sell-off in extended trading. This reaction can be attributed to the fact that the stocks were priced for perfection. Despite Alphabet’s shares surging by 56% this year and reaching new heights, along with Microsoft’s 70% growth and surpassing Apple as the most valuable publicly traded company, investors were left disappointed and found aspects to nitpick in the earnings reports.
Alphabet and Microsoft boasted significant achievements last year, having successfully capitalized on the artificial intelligence wave and impressing shareholders with their cost-cutting endeavors, which involved workforce reductions. In the weeks leading up to their earnings announcements, investors were eagerly purchasing shares in anticipation of positive surprises. However, these expectations were not fully met, leaving investors feeling let down by the reported numbers.
Alphabet reported a 13% growth in revenue, marking its fastest rate of expansion since early 2022. The company’s sales reached $86.31 billion, which exceeded the average estimate of $85.33 billion by LSEG. Moreover, Alphabet’s earnings per share stood at $1.64, surpassing estimates by 5 cents. Although both Alphabet and Google Cloud exceeded expectations in their cloud businesses, Google’s ad business fell short. Revenue from this sector amounted to $65.52 billion, trailing analysts’ estimates of $65.94 billion. Specifically, YouTube’s performance was slightly below expectations.
According to Brian Wieser, an analyst at media and advertising consultancy Madison and Wall, many individuals in the market hold unrealistic expectations for Google, considering its size and dominant position. Wieser highlights that the advertising market’s growth cannot be sustained at double-digit levels for an extended period, contrary to what some investors and analysts believe. The market’s misunderstanding of these realities plays a role in the disappointment experienced when the quarterly results were released.
Following the earnings report, Alphabet’s shares plummeted by almost 6%, illustrating a strong negative reaction. Microsoft’s drop was less severe in comparison, with the stock initially declining over 2% but managing to recover some of its losses. Microsoft’s outlook for the future raised concerns as it fell slightly short of expectations, overshadowing the positive earnings and revenue beat. The company projected fiscal third-quarter sales between $60 billion and $61 billion, while analysts polled by LSEG had expected $60.93 billion. Another company that experienced a drop in its stock price despite better-than-expected revenue numbers was chipmaker AMD. Despite the stock’s impressive 137% growth in the past year due to excitement surrounding its artificial intelligence processors, it fell by nearly 6% post-announcement.
Investor attention now turns to Thursday, when tech giants Amazon, Apple, and Meta are slated to release their quarterly results. Meta shares, like Alphabet and Microsoft, have reached record highs this month, displaying strong market performance. Apple achieved its all-time high in December, while Amazon’s stock remains approximately 6% below its 2022 record. Market participants eagerly await these companies’ results, hoping they will meet or exceed the high expectations set by investors.
The reaction of Wall Street to the quarterly results of Alphabet and Microsoft emphasized the market’s insatiable appetite for perfection. While the companies reported strong revenue and earnings growth, they failed to meet the extremely high expectations set by investors. Alphabet’s Google ad business fell short, causing disappointment among shareholders. The market’s unrealistic expectations and failure to understand the advertising industry’s realities contributed to the negative response. The subsequent drop in share prices further demonstrated the market’s dissatisfaction. As we await the results of Amazon, Apple, and Meta, the focus will be on whether these companies can meet investors’ lofty expectations or potentially face similar reactions from Wall Street.
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