Microsoft Rises, Alphabet Falls: “Not all tech stocks are created equal”

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Heading into Wednesday’s session, Microsoft stock is down nearly 20% year-to-date.

Gerard Julien/AFP via Getty Images

It was a tale of two tech stocks on Wednesday, as


Microsoft

pink and


Alphabet

fell after earnings.


Shares rose early on Wednesday as the software maker benefited from better-than-expected guidance for its fiscal fourth quarter and strong demand for its cloud services.


Alphabet

the stock (ticker: GOOGL) was headed the other way, falling after Google’s parent company reported first-quarter sales that fell short of analysts’ expectations. To blame were slower ad growth in the quarter and slower YouTube sales. Chief Financial Officer Ruth Porat said revenue growth for Alphabet’s advertising business will face a tough comparison in the second quarter. The results will also reflect the suspension of business activities in Russia, Porat added.

Microsoft was up 3.7% at $280.30 in premarket trading. Heading into Wednesday’s session, the stock is down nearly 20% year-to-date. Alphabet fell 4.2% to $2,272.75. It has fallen more than 18% this year.

“Microsoft’s earnings outpace Alphabet’s suggest investors should be selective in the tech sector,” said Ryan Belanger, chief executive and founder of Claro Advisors, a Boston-based wealth management firm. “Not all tech stocks are created equal and not all megacap tech stocks are created equal.”

Microsoft’s third fiscal quarter revenue rose 18% to $49.4 billion. In its Intelligent Cloud segment, which includes the company’s Azure cloud business, revenue was $19.1 billion, up 26% year-on-year and above estimates from Wall Street of $18.89 billion. Azure’s cloud computing business grew 46% in the quarter, or 49% in constant currency.

Microsoft Chief Financial Officer Amy Hood said on the company’s conference call that Azure’s revenue growth would slow only slightly in the fourth quarter, to around 47%, which would still be above analysts’ forecasts.

RBC Capital Markets analysts said Microsoft’s guidance for the fourth quarter was “strong, which should ease investor fears of a macroeconomic slowdown.”

RBC maintained its outperform rating for the stock and the price target of $380.

Wedbush’s Dan Ives said Microsoft “has delivered a robust cloud direction ‘for the ages’ that will calm the nerves of the streets…and was a bullish data point for MSFT and, importantly, for the tech industry as a whole at the moment. ‘coming.”

Wedbush maintained its outperform rating on Microsoft but lowered its price target to $340 from $375, “reflecting a lower multiple,” Ives said.

Alphabet’s YouTube revenue was $6.87 billion in the first quarter, well below analysts’ forecast of about $7.5 billion. RBC analysts called YouTube’s second consecutive failure “the main controversy”.

YouTube has seen slower growth in direct-response ads, which has a lot to do with “IDFA headwinds,” analysts said.


Apple

removed a feature on its platform known as IDFA, or Identifier for Advertisers, which assigned a unique designation to each device, making it easier to track visits to various apps and websites.

RBC analyst Brad Erickson also highlighted YouTube’s battle with TikTok, saying the popular video app “will continue to be seen as a key disruptor in the space.”

Erickson rates Alphabet shares at Outperform with a price target of $3,420. Despite the failure of first quarter sales, the company “is as well positioned as anything else in the space to continue to deliver strong and profitable growth at scale with a growing commitment to returning capital to shareholders,” the analyst said.

Write to Joe Woelfel at [email protected]

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