Wall Street punishes Alphabet and Microsoft despite earnings beats after stocks hit record

Results
were
good,
but
not
good
enough.

That’s
Wall
Street’s
reaction
to
quarterly
results
on
Tuesday
from


Alphabet
and


Microsoft.
Both
companies
reported
revenue
and
earnings
that
exceeded
estimates,
yet
the
stocks
sold
off
in
extended
trading.

In
investor
speak,
the
stocks
were
priced
for
perfection.
Alphabet
shares
are
up
56%
for
the
year
and

climbed
to
a
fresh
high
last
week,
exceeding
the
prior
record
from
late
2021,
the
peak
of
the
tech
boom.
Microsoft
is
up
70%
over
the
past
12
months,
also
reaching
a
fresh
high
recently
and
surpassing


Apple
as
the

most
valuable
publicly
traded
company.

The
companies
generated
excitement
last
year
by
riding
the
artificial
intelligence
wave,
and
were
also
lauded
by
shareholders
for
their
dramatic
cost-cutting
efforts,
which
included
eliminating
thousands
of
jobs.

In
the
weeks
heading
into
their
earnings
reports,
investors
were
buying
as
if
they
expected
positive
surprises.
They
were
left
disappointed
and
nitpicking
the
numbers.

Alphabet
on
Tuesday

reported
13%
revenue
growth,
the
fastest
rate
of
expansion
since
early
2022.
Sales
of
$86.31
billion
topped
the
average
estimate
of
$85.33
billion,
according
to
LSEG,
formerly
Refinitiv.
Earnings
per
share
of
$1.64
beat
estimates
by
5
cents.

Revenue
at
Microsoft
increased
18%
to
$62.02
billion,
topping
the
$61.12
billion
average
analyst
estimate.
EPS
of
$2.93
was
15
cents
above
consensus.

Both
companies
also
beat
expectations
in
their
cloud
businesses,
with
Google
Cloud
reporting
25%
growth
and
Microsoft’s
larger
Azure
and
other
cloud
services
expanding
by
30%.

The
one
disappointment
from
Alphabet
was
in
Google’s
ad
business,
which
delivered
revenue
of
$65.52
billion,
trailing
analysts’
estimates
of
$65.94
billion,
according
to
StreetAccount.
Within
ads,
YouTube
came
in
just
shy
of
expectations.

Stifel
analysts,
who
recommend
buying
the
stock,
said
in
a
quick-take
report
on
Tuesday
that
Alphabet
produced
“healthy
advertising
results,
but
not
enough.”

Brian
Wieser,
an
analyst
at
media
and
advertising
consultancy
Madison
and
Wall,
said
the
market
has
unrealistic
expectations
for
Google
given
its
size
and
dominance.

“In
my
general
conversations
with
public
market
investors
and
sell-side
analysts,
few
have
a
correct
view
of
the
advertising
market,”
Weiser
said.
“Many
think
that
growth
can
continue
at
double-digit
levels
for
the
fastest-growing
companies
for
much
longer
a
period
of
time
than
is
realistic
to
expect.”

Alphabet
shares
dropped
almost
6%
after
the
report.
Microsoft’s
drop
was
less
severe.
The
stock
initially
fell
by
more
than
2%
and
then
pared
some
of
its
losses.

Microsoft’s
outlook
was
a
bit
light,
overshadowing
the
earning
and
revenue
beat.
The
company
called
for
fiscal
third-quarter
sales
between
$60
billion
and
$61
billion,
while
analysts
polled
by
LSEG
had
expected
$60.93
billion.

Shares
of
chipmaker


AMD
also
dropped
despite

better-than-expected
revenue
numbers
and
profit
that
met
estimates.
The
stock,
which
is
up
137%
in
the
past
year
on
excitement
about
its
artificial
intelligence
processors,
fell
almost
6%
after
the
announcement.

Attention
now
turns
to
Thursday,
when


Amazon,


Apple
and


Meta
all
report
quarterly
results.
Like
Alphabet
and
Microsoft,
Meta
shares
have
climbed
to
a
record
this
month.
Apple
hit
its
all-time
high
in
December,
while
Amazon
remains
about
6%
below
its
record
from
2022.

—CNBC’s
Jonathan
Vanian,
Jordan
Novet
and
Kif
Leswing
contributed
to
this
report

WATCH:

This
was
a
‘high
expectation’
quarter
for
Alphabet