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Microsoft (MSFT) and Google parent Alphabet (GOOG, GOOGL) reported better-than-expected earnings after the bell on Tuesday, but the results weren’t enough for Wall Street as both companies’ stock prices fell during Wednesday trading. There wasn’t.
And with Apple and Meta scheduled to report earnings on Thursday, the pressure is on for both companies to blow away analyst expectations if they hope their stock prices avoid the same fate.
For Microsoft, the news is good news for its artificial intelligence efforts, which the company says contributed 6 percentage points to revenue growth in its Azure cloud business. But Wall Street wasn’t too excited about the results, with shares falling more than 1% on Wednesday and the company’s market capitalization falling below $3 trillion. This is despite the fact that Microsoft exceeded expectations in both revenue and bottom line.
Alphabet, meanwhile, faced a tougher valuation, with its stock falling more than 6% on Wednesday. Although Alphabet was depressed by missing expectations for advertising revenue, sales and bottom lines exceeded expectations, and the company saw growth in its cloud business.
For Microsoft, the results appear to indicate that Wall Street wants the company to squeeze more revenue out of its multibillion-dollar investment in generative AI technology. For Alphabet, the market reaction shows it needs to balance growing ad revenue with pushing deeper into the cloud market.
Two other interesting points from the announcement: His CEO at Alphabet, Sundar Pichai, told analysts on the company’s earnings call that his Alphabet subscription services, including YouTube TV and Google One, are now a $15 billion annual business. Since 2019, it has increased approximately five times.
Another surprising piece of news comes as Microsoft reports that its gaming division, which now includes Activision Blizzard, is officially its third-largest business. The group’s revenue was $7.1 billion, more than Windows’ $5.2 billion.
Apple and Meta on the deck
Microsoft and Google’s earnings may have ebbed and flowed, but the Big Tech parade continues to move, with Apple (AAPL) and Meta (META) scheduled to report earnings on Thursday.
Apple’s announcement will set the stage for 2024 and give Wall Street the first full quarterly look at iPhone 15 sales. Meanwhile, Meta needs to show analysts that its advertising business continues to recover and how it will monetize its massive investment in generative AI.
Apple’s first quarter profits are arguably the most anticipated in a while. Earlier this month, analysts at Barclays, Piper Sandler and Redburn Atlantic downgraded Apple’s stock over concerns about iPhone sales in China. And on Tuesday, TF International Securities analyst Ming-Chi Kuo published a report on Medium saying he expects iPhone shipments in 2024 to decline 15% from a year ago.
Kuo cited Huawei’s resurgence and consumer interest in foldable generative AI-powered phones as reasons for China’s potential economic slowdown.
As of Tuesday afternoon, Apple stock had fallen about 2% since the beginning of the year.
This initial downward trend cost Apple its position as the richest publicly traded company by market capitalization. As of Tuesday, the company had a market capitalization of $2.91 trillion, trailing new leader Microsoft’s market capitalization of $3.04 trillion.
Apple is also in the midst of major revisions to its European App Store to comply with the EU’s new digital market law. The move means Apple will open up its devices to third-party app stores and cloud gaming services, including Microsoft’s Xbox Cloud Gaming.
But critics, including Epic CEO Tim Sweeney and Spotify CEO Daniel Ek, say the changes don’t go far enough. In particular, they point to the new €0.50 core technology fee that Apple charges developers. This fee begins after the developer records more than 1 million downloads in his 12-month period and applies to each subsequent download.
Apple is also preparing for the February 2nd release of its Vision Pro AR/VR headset. The device, which Apple calls a spatial computer, is the company’s first new product category in nearly a decade and could potentially be offered. A company with a powerful new revenue stream. But that’s only if customers can get past his $3,499 price tag.
The company will need strong results in the quarter to justify recent stock market performance. Meta’s stock price has increased 33% in the past three months and 164% in the past 12 months. This is better than the stock performance of Microsoft, Apple, Google, and Amazon over the same period.
Meta is buoyed by a recovery in its most important advertising business, after a slump caused by Apple’s App Tracking Transparency feature and a plunge in the digital ad market due to dizzying interest rates.
But Meta is still draining money from its Reality Labs division, which is responsible for Metaverse work and the Quest headset. The company reported in the third quarter that the division had a loss of $3.7 billion in the third quarter of 2023 alone. But with Apple’s headset launching soon, Meta could have a ripple effect on Quest headset sales.
We’ll see how this all resolves on Thursday.
Daniel Howley I’m the technology editor at Yahoo Finance. He has been covering the technology industry since his 2011. You can follow him on Twitter. @Daniel Howley.
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