Microsoft and Alphabet reported better-than-expected earnings after the bell on Tuesday, but those results weren’t enough for Wall Street, as shares of both companies fell in trading Wednesday.
And with Apple and Meta set to report their earnings on Thursday, the pressure is on for the duo to blow away analysts’ expectations if they hope their respective stocks will avoid the same fate.
For Microsoft, the news was a boon for its artificial intelligence efforts, which the company said contributed 6 percentage points of revenue growth to its Azure cloud business. But Wall Street was less than enthusiastic about those results, sending shares lower by more than 1% on Wednesday and dropping the company’s market capitalization below $3 trillion. This was despite the fact that Microsoft topped expectations on both the top and bottom lines.
Alphabet, meanwhile, faced a harsher reckoning, with shares falling more than 6% on Wednesday. Alphabet took a gutshot after missing expectations for advertising revenue, though it did beat on the top and bottom lines and saw growth in its cloud business.
For Microsoft, the results seemingly show that Wall Street wants the company to squeeze more revenue out of its multibillion-dollar investments in generative AI technologies. For Alphabet, the market’s reaction points to a need to balance ad revenue growth with its deeper push into the cloud market.
Two other interesting points from the announcements: Alphabet CEO Sundar Pichai told analysts on the company’s earnings call that Alphabet’s subscription services, like YouTube TV, Google One, etc., are now a $15 billion per year business. That’s up some five times since 2019.
The other surprising news came when Microsoft reported that its gaming division, which now includes Activision Blizzard, is officially its third-largest business. The group earned $7.1 billion, ahead of Windows, which took in $5.2 billion.
Apple and Meta on deck
Microsoft and Google’s earnings may have come and gone, but the Big Tech parade keeps on moving, with Apple and Meta set to report their earnings on Thursday.
Apple’s announcement will help set the stage for 2024, giving Wall Street its first look at full-quarter iPhone 15 sales. Meta, meanwhile, will need to show analysts that its advertising business is continuing to rebound and that it can figure out how to monetize its massive generative AI investments.
Apple’s Q1 earnings are easily its most anticipated in some time.
Earlier this month, analysts at Barclays, Piper Sandler, and Redburn Atlantic downgraded Apple’s stock on concerns over iPhone sales in China. And on Tuesday, TF International Securities analyst Ming-Chi Kuo released a report saying that he expects iPhone shipments to decline 15% year over year in 2024.
Kuo cited a resurgent Huawei as well as consumer interest in generative AI-powered and foldable phones as reasons for the potential slowdown in China.
Shares of Apple were down roughly 1.5% year to date on Tuesday afternoon.
That early downward trend has cost Apple its spot as the most valuable publicly traded company by market capitalization. As of Tuesday, the company’s market cap topped out at $2.9 trillion, below new leader Microsoft’s $3 trillion market cap.
Apple is also in the midst of making major revisions to its App Store in Europe, as it seeks to comply with the EU’s new Digital Markets Act. The moves mean that Apple will open up 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 are insufficient.
In particular, they point to a new 0.50 euro Core Technology fee Apple will charge developers. The charge kicks in after developers record more than 1 million downloads in 12 months and will apply to each subsequent download.
Apple is also gearing up for the launch of its Vision Pro AR/VR headset on Feb. 2. The device, which Apple refers to as a spatial computer, is the first new product category from the company in nearly a decade and could provide the company with a powerful new revenue stream. But that’s only if customers can get past the $3,499 price tag.
The company will need a strong performance in the quarter to justify its stock market performance as of late. Shares of Meta are up 33% over the last three months and 164% over the last 12 months. That’s better than the stock performance of Microsoft, Apple, Google, and Amazon over the same period.
Meta is riding high on a rebound in its all-important advertising business after it was kneecapped by Apple’s App Tracking Transparency feature and a steep decline in the digital ad market thanks to dizzying interest rates.
But Meta is still hemorrhaging money from its Reality Labs division, which is responsible for its metaverse work and Quest headsets. In Q3, the company reported the segment lost $3.7 billion in Q3 2023 alone. But with Apple’s headset coming shortly, Meta could see a knock-on effect for Quest headset sales.
We’ll see how this all shakes out come Thursday. | 
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