Big Tech, Bigger Expectations

Image source: Google and Microsoft

What's going on?

Microsoft pulled off reported better-than-expected quarterly results late on Tuesday while Google-parent Alphabet fell short, but investors tarred them both with the same brush.

What does this mean?

Microsoft’s previous report disappointed analysts earlier this year, but the tech giant sure made amends to that last quarter: its darling cloud computing business made 20% more revenue versus the same time last year, while its business productivity segment – think Office 365 and LinkedIn – grew 9%. Layer on a better-than-expected performance from its PC segment, and both Microsoft’s revenue and profit tidily beat expectations. But since that cloud revenue actually grew slower than expected, hard-to-please analysts still sent the firm’s shares down 2%.

And while Alphabet managed to grow its cloud segment’s revenue by an impressive 38% last quarter, its all-important ad business – which spans across YouTube and Google and makes up the bulk of its revenue – grew a measly 3%, seemingly following in Snap’s ominous footsteps from last week. Alphabet, then, disappointed in both revenue and profit, so downcast investors duly sent its stock down 6%.

Why should I care?

For markets: Gimme five.
The rest of the Big Tech firms – Meta, Apple, and Amazon – are due to report results this week. And since the superstar fivesome make up nearly half of the tech-heavy Nasdaq, the group’s performance could dictate the direction of the index in the going forward. If Microsoft and Alphabet’s negative receptions are anything to go by, the index – which has dipped over 30% this year and lost about $6 trillion in value – could have even further to fall.

Zooming out: Show-ers, not growers.
Growth is harder to come by during a downturn, so eagle-eyed analysts will be expecting tech companies to cut costs and increase efficiencies. That could include cozying up to blockchain technology: see, while enthusiasts might get dizzy over its world-changing decentralization potential, companies seem focused on more vanilla uses. In fact, a Bloomberg survey of tech executives showed they’re most excited about blockchain’s ability to speed up transactions, improve supply chains, and cut costs. How seductive…

Originally posted as part of the Finimize daily email.

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