(US) Microsoft, Alphabet to Lift Nasdaq and Technology Sector
(US) Microsoft, Alphabet to Lift Nasdaq and Technology Sector

(US) Microsoft, Alphabet to Lift Nasdaq and Technology Sector

Tue, Apr 30, 2024 11:45 AM

By Vincent Lau, Head of Equity Research, Rakuten Trade. 

 

Microsoft's (MSFT) third-quarter results exceeded estimates on the top and bottom lines, but revenue guidance was weaker than expected. 

 

Here’s a breakdown for you on what’s happening with Microsoft: 

 

The Good News 

  • Microsoft announced a third-quarter revenue rise of 17% from a year ago to USD$61.86 billion. 
  • Net profit attributable was USD21.94 billion, an increase of 19.90% compared to USD$18.30 billion. 
  • The adjusted earnings per share (EPS) were USD$2.94 per share, up 20%, beating analysts' estimate of USD2.83 per share. 

 

Highlights 

During the quarter results, Microsoft's Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance and GitHub, surged by 21% to USD26.71 billion in revenue. Azure's performance was particularly robust, with a 7% growth attributed to AI-related services. The company supports the ChatGPT chatbot from OpenAI with its cloud services and is increasingly leveraging Azure AI services to enhance its abilities in information summarization and document writing. The company also secured a significant deal with Coca-Cola (KO), signing a five-year, USD1.1 billion agreement to use Azure cloud services and AI technology. 

  

Microsoft's initiatives, including Copilot and Copilot stack, drive a new wave of AI transformation, delivering enhanced business outcomes across various industries. Moreover, the company has been ramping up its capital expenditure to procure Nvidia (NVDA) graphics processing units, essential for training and running AI models. 

  

However, despite the positive performance, Microsoft's revenue guidance for the next quarter fell slightly short of market expectations. Amy Hood, Microsoft's finance chief, forecasted revenue of USD64 billion, slightly below the market consensus of USD64.5 billion. 

  

Microsoft's share price increased by +32.98% year-to-date (1 year), and the last traded price was USD406.13. Bloomberg consensus rating has 63 Buys and 5 Holds, with a 12-month target price of USD479.88 

 

Alphabet Inc (GOOGL) surpassed expectations in the first quarter, with strong sales, profit, and advertising performance driven by the growth of YouTube advertising and Google Cloud revenue. 

 

Here’s a breakdown for you on what’s happening with Alphabet Inc: 

The Good News 

  • First-quarter revenue rise of 15.41% from a year ago to USD80.54 billion. 
  • Net profit attributable was USD23.66 billion, an increase of 57.21% compared to USD15.05 billion. 
  • The adjusted earnings per share (EPS) were USD1.89 per share, up 61.54%, beating analysts' estimate of USD1.483 per share. 

 

Highlights 

Regarding business, Alphabet beat Q1 revenue, fueled by growing demand for its cloud services, buoyed by the increasing adoption of AI and steady advertising spending. Advertising sales grew by 13% to USD61.7 billion during the quarter. Meanwhile, Google Cloud revenue surged by 28%, driven by generative AI tools that rely on cloud services to deliver the technology to customers.  

  

The company's capital expenditure reached USD12 billion, a 19% rise from the previous year. CFO Ruth Porat anticipates maintaining or exceeding this expenditure level throughout the year as Alphabet invests in building its AI offerings. 

  

Alphabet announced its first-ever dividend and a USD70 billion stock buyback in a significant move. The company authorized a dividend of 20 cents per share to be paid on June 17 to all shareholders of record as of June 10, with intentions to continue paying future quarterly cash dividends. 

  

Analysts raise their price target and reiterate an outperform rating on Alphabet's stock. 

  

Alphabet's share price increased by +60.40% year-to-date (1 year), and the last traded price was USD171.92. Bloomberg consensus rating has 57 Buys and 10 Holds, with a 12-month target price of USD189.54 

 

For more upcoming updates on earnings, follow our official Telegram channel. 

 

Sources:  

  1. https://www.cnbc.com/2024/04/25/microsoft-msft-q3-earnings-2024.html  
  2. https://finance.yahoo.com/video/microsoft-earnings-top-estimates-cloud-202638018.html
  3. https://www.cnbc.com/2024/04/25/alphabet-set-to-report-first-quarter-results-after-market-close.html
  4. https://www.reuters.com/technology/google-parent-alphabet-announces-first-ever-divided-20-cents-per-share-2024-04-25/