Microsoft and Google Both Fail to Top Expectations, Circling Same Drain?

It’s turning into a familiar tale: the big tech companies missing Wall Street estimates and then taking a dive in after-hours trading. Microsoft (MSFT) and Alphabet (GOOGL), the parent company of Google, both swung and missed analyst expectations this week, and the punishment was swift. Microsoft shares dropped more than 4% in after-hours trading Tuesday following the release of its fiscal third-quarter earnings report. Google parent Alphabet’s shares tumbled about 3% after the market closed Wednesday following release of its fourth-quarter numbers. In the case of Microsoft, the culprit was a slowdown in growth in the company’s Azure cloud business. Azure, which competes with Amazon’s (AMZN) AWS and Google Cloud, is a key driver of Microsoft’s growth. Google missed expectations largely because of weakness in its bread-and-butter area of advertising. The company’s search and YouTube advertising revenue grew at a much slower pace than analysts had expected. Both Microsoft and Google are facing challenges from macroeconomic headwinds, such as inflation and rising interest rates. These factors are weighing on consumer spending and business investment, which is in turn hurting the tech giants’ businesses. However, Microsoft executives did point to some bright spots: revenue growth in the gaming and Surface businesses. Microsoft also saw growth in its LinkedIn social media network. Google also has some bright spots. The company’s cloud business grew 32% year-over-year in the fourth quarter, and YouTube Shorts, the company’s TikTok competitor, is gaining traction with users. Despite the challenges, Microsoft and Google remain two of the most powerful companies in the world. Both companies have a wide moat, thanks to their dominant positions in their respective markets, and this should help them weather the current storm. However, the recent earnings misses show that even the tech giants are not immune to the challenges facing the broader economy. Investors will be watching closely to see how Microsoft and Google navigate these headwinds in the coming quarters..