Tech stocks hammered as Alphabet, Microsoft report earnings
Tech stocks fell deeper into the red after markets closed on Tuesday, as Alphabet and Microsoft reported results that failed to reverse the negative investor sentiment.
Shares of Google’s parent Alphabet (GOOGL)tumbled 5% in after-hours trading, extending a 3.6% slump. Investor anxiety has gripped the market amid mounting concerns that high inflation and rising interest rates will curb consumer spending, dimming the outlook for corporate profits.
Alphabet shares slumped even after the company said its board authorized the increase in buyback of as much as $70 billion in Class A and Class C shares.
The results signaled weakening advertising spending across the tech sector, adding to the negative sentiment that has gripped the stock market.
While Microsoft (MSFT) offered some relief with results that meet Wall Street’s expectations, that wasn’t enough to curb the slide in share prices.
What happened?
Here’s how the two tech giants fared in this most recent earnings release.
Alphabet’s earnings miss despite in-line revenue
Alphabet reported a 23% growth in sales of $68 billion, roughly in-line with estimates, but missed on earnings. Earnings fell more than 6% year over year to $24.62 per share. Wall Street was calling for earnings of $25.96 per share.
Alphabet’s YouTube business slowed dramatically compared to last year. Its YouTube revenue grew about 14% to $6.87 billion, well below the 49% growth it saw in the previous year’s quarter. Alphabet’s advertising revenue grew 22% to $54.7 billion. That’s slower than the 33% increase seen in the segment a year earlier.
Investor sentiment has turned negative for the stock that 38 analysts rated either as a buy or a strong buy. Only five have a hold recommendation on Alphabet, with the average target price set at $3,465.90, signaling upside potential for shares that traded at $2,219.97 at 5:12 p.m. in New York Tuesday.
Microsoft’s revenue meets expectations, beats on bottom line
Earnings per share rose 9% to $2.22, beating Wall Street’s expectations that called for $2.18. Revenue expanded 18% in the first quarter to $49.4 billion, in line with analysts’ estimates. Sales were boosted by results from the company’s cloud platform, the company said in a press release.
Before the results were released, 27 of 34 analysts who cover Microsoft had a buy or strong buy recommendation on the stock, with six rating it as hold. Their average target price was $366.45, signaling upside potential for shares that traded at $269.91 in after-hours trading.
Now what?
The tech-heavy Nasdaq Composite hit a new low for 2022 Tuesday, dropping almost 4% to 12,490.74, as investors seemingly continue to dump riskier stocks on fears of an economic slowdown. The index is retreating further into bear market territory, trading at about 23% off its high.
Investors are looking to Big Tech, many of which are reporting this week, for signs of a possible turnaround in the market. But even positive earnings might not be enough to counter growing concerns over the economy and rising borrowing costs.
While the end of the slump may not be in sight, investors must review the financial data of each of the companies before deciding what to do with their portfolio.
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