Bloomberg recently reported that while 75% of companies have beaten analysts' estimates, this is the lowest rate since 4Q2022. In other words, a 75% beat rate no longer signifies a standout performance, as companies are typically expected to exceed estimates due to conservative management guidance.
Microsoft delivered a 16% year-over-year (YoY) revenue growth, surpassing analysts' expectations. However, its share price declined by 3.71% in after-hours trading.Although a breakdown of the next quarter’s guidance for the Azure + Cloud segment wasn’t provided, this segment has maintained over 30% YoY growth in recent quarters, including the latest. This consistency is reassuring, yet Microsoft’s overall revenue growth forecast of 10.6% might signal a potential slowdown in Azure + Cloud as well, giving some investors a reason to sell.
The reason cited by media outlets is that the company's guidance for the next quarter anticipates only a 10.6% growth, disappointing investors. While it's difficult to attribute the stock’s reaction solely to this guidance, it likely played a role, as concerns grow over the sustainability of the recent AI-driven run. Any sign of deceleration tends to trigger a negative response from investors, making guidance critical to post-market sentiment.
For Alphabet’s stock fared better following its earnings release, rising initially by 5% before ending the day up 2.8%, giving up some gains with the broader market pullback.
Alphabet exceeded both revenue and earnings estimates, reporting a 15% YoY revenue growth. The standout surprise was its Cloud revenue, which reached $11.35 billion, significantly surpassing the $10.88 billion estimate and marking a 35% YoY increase. Tracking the YoY growth for Google Cloud reveals an acceleration from the low 20s to the current 35%, outpacing Microsoft's recent cloud growth. This trend indicates that Alphabet’s investments in AI are beginning to generate revenue.While Alphabet’s advertising revenue growth has slowed, with Google Search and YouTube ads growing 12% YoY, it remains steady amid increased competition from TikTok and Amazon ads. This resilience is commendable.
Final verdict is Alphabet or Microsoft a good buy ? Is up to you to judge .
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