- Giants to kick-off big tech earnings after closing bell on Tuesday (25 April)
- AI chatbot talk likely to be a dominant feature of commentary
- Pair’s shares have rallied 18% and 20% respectively in 2023
It’s a big week for big tech earnings with both Microsoft (MSFT:NASDAQ) and Alphabet (GOOG:NASDAQ) kicking off quarterly reports after the US market closing bell on 25 April (Tuesday).
Year-to date, Microsoft’s shares are nearly 20% up, while Alphabet is around 18% higher in 2023 thanks to a broad rebound in tech stocks this year.
In the fourth quarter, both tech giants reported a decline in revenue growth due to weakening demand, yet Wedbush analysts think there’s a decent chance of performance outstripping current expectations as hefty cost cuts start to flow through.
Consensus revenue and EPS (earnings per share) forecasts for Microsoft are pitched at $51.1 billion and $2.24 respectively - Alphabet estimates at $1.08 EPS on $68.9 billion.
ESCALATING CHATBOT ARMS RACE
The emergence this year of chatbot technology has opened a new area of growth for Microsoft and Alphabet and we anticipate that commentary here will be one of the dominant themes. Microsoft’s shares jumped in late January and the company became the de facto front-runner after announcing its $10 billion investment into OpenAI, whose artificial intelligence tool ChatGPT gained more than one million users days after it was introduced in November 2022.
The investment aims to enhance Microsoft’s competitiveness with its rivals, including Alphabet, Amazon (AMZN:NASDAQ), Meta Platforms (META:NASDAQ) and others in the cloud business.
By contrast, Alphabet’s shares lost more than 7%, or $100 billion of its market cap, on the day when its ChatGPT rival, Bard, failed to answer basic questions in a fumbled presentation in February. On the same day, Microsoft officially announced the ChatGPT-powered searching tool, Bing.
To compete in the heating-up AI battle, Alphabet plans to merge a Google Research team named Google Brain with DeepMind, which was acquired in 2014 and run as an independent unit, to build an AI-focused team. The move marks a major step after it introduced Bard to the general public. Could it be that Alphabet’s Google crown jewel is losing its leadership in the AI-powered search tool contest?
ADVERTISING, PCS AND CLOUD
Weakened advertising demands were the primary issue that slowed its growth in Q4 2022, while YouTube revenue declined further, down 8% from a year ago due to competition from TikTok.
The positive note is that its Google Cloud revenue grew 32% from a year ago and cut its losses dramatically. The company said it would take a charge of between $1.9 billion and $2.3 billion in the first quarter due to the 12,000 job cuts. And it may also incur costs of $500 million relating to reduced office space.
PC and laptop sales present the most obvious growth hurdle for Microsoft, with researchers at Gartner predicting worldwide PC shipments down 30% year-on-year in the first quarter of 2023. Microsoft’s finance chief, Amy Hood, has said she expects the firm’s PC business to contract again, so it’s certainly something to watch.
Microsoft’s revenue growth was only 2% annually in the December quarter of 2022, the slowest since 2016. Its Azure cloud services grew 31% but that was down from 46% in the same quarter a year ago, with the law of big numbers playing its part. Microsoft expects Azure cloud growth to slow further to about 25%.
