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It was a tale of two tech stocks Wednesday, as
Microsoft
rose and
Alphabet
fell following earnings.
Microsoft
stock was rising early Wednesday, with the software maker getting a boost from better-than-expected guidance for its fiscal fourth quarter, and strong demand for its cloud services.
Alphabet
stock (ticker: GOOGL) was heading the other way, falling after the parent company of Google posted first-quarter sales that missed analystsâ expectations. To blame was slower advertising growth in the quarter and a sales slowdown at YouTube. Chief Financial Officer Ruth Porat said revenue growth at Alphabetâs advertising business will face a tough comparison in the second quarter. The results will also reflect the suspension of commercial activities in Russia, Porat added.
Microsoft was rising 4.7% to $282.91 on Wednesday. The stock has fallen almost 16% year to date. Alphabet fell 3.5% to $2,291. It has tumbled nearly 21% this year.
âMicrosoftâs earnings beat and Alphabetâs earnings miss suggest investors should be selective within the technology sector,â said Ryan Belanger, managing principal and founder of Claro Advisors, a Boston wealth management firm. âNot all technology stocks are created equal and not all megacap tech stocks are created equal.â
Revenue in Microsoftâs fiscal third-quarter rose 18% to $49.4 billion. At its Intelligent Cloud segment, which includes the companyâs Azure cloud business, revenue was $19.1 billion, up 26% from a year earlier and higher than Wall Street estimates of $18.89 billion. The Azure cloud computing business grew 46% in the quarter, or 49% in constant currency.
Microsoft Chief Financial Officer Amy Hood said on the companyâs conference call that Azure revenue growth would slow only slightly in the fourth quarterâto about 47%, which would still be above analystsâ projections.
Analysts at RBC Capital Markets said Microsoftâs guidance for the fourth quarter was âsolid, which should allay investor fears of a macro slowdown.â
RBC maintained its Outperform rating on the stock and price target of $380.
Wedbushâs Dan Ives said Microsoft âgave a robust cloud guidance âfor the agesâ that will calm Street nerves âŚand was a bullish data point for MSFT and importantly the whole tech sector moving forward.â
Wedbush maintained its Outperform rating on Microsoft but lowered its price target to $340 from $375, âreflecting a lower multiple,â Ives said.
Revenue at Alphabetâs YouTube was $6.87 billion in the first quarter, which was well below analystsâ forecasts of about $7.5 billion. RBC analysts called YouTubeâs second miss in a row âthe main controversy.â
YouTube experienced slower growth of direct-response ads, which had a lot to do with âIDFA headwinds,â the analysts said.
Apple
has defanged a feature on its platform known as IDFA, or Identifier for Advertisers, which assigned a unique designation for every device, making it easier to track visits to various apps and websites.
RBC analyst Brad Erickson also highlighted YouTubeâs battle with TikTok, saying that the popular video app will âcontinue to be viewed as a key disrupter in the space.â
Erickson rates shares of Alphabet at Outperform with a price target of $3,420. Despite the first-quarter sales miss, the company âis as well-positioned as anything in the space to continue showing strong, profitable growth at scale with a rising commitment to return capital to shareholders,â the analyst said.
Write to Joe Woelfel at joseph.woelfel@barrons.com
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