The reaction on Wall Street to the quarterly results from Alphabet and Microsoft on Tuesday was unexpected, with both companies experiencing a sell-off in extended trading despite reporting revenue and earnings that surpassed estimates.
Alphabet’s shares, which have surged by 56% this year and reached a new high recently, were priced for perfection, reflecting the heightened expectations of investors. Similarly, Microsoft, up 70% over the past 12 months and surpassing Apple as the most valuable publicly traded company, faced similar pressures.
Both companies had generated excitement among investors last year by capitalizing on the artificial intelligence wave and implementing significant cost-cutting measures, including job eliminations. However, heading into their earnings reports, investors had anticipated positive surprises, leading to disappointment when the results fell short of expectations.
Alphabet reported a 13% increase in revenue, the fastest rate of expansion since early 2022, with sales of $86.31 billion exceeding the average estimate. Microsoft saw an 18% revenue growth to $62.02 billion, also surpassing analyst expectations.
Despite beating expectations in their cloud businesses, both companies faced scrutiny over certain aspects of their performance. Alphabet’s Google ad business, in particular, fell short of estimates, while Microsoft’s outlook for the fiscal third quarter was perceived as slightly light.
The market’s reaction to these results underscored the unrealistic expectations placed on tech giants like Alphabet and Microsoft, according to analysts. The drop in Alphabet shares, almost 6% after the report, and the initial decline in Microsoft’s stock highlighted the discrepancy between market expectations and actual performance.
Looking ahead, all eyes are on Thursday’s quarterly results from Amazon, Apple, and Meta, as investors brace for further insights into the performance of these tech giants. With Meta shares reaching record highs this month and Apple hitting its all-time high in December, the tech sector continues to face intense scrutiny amid heightened expectations and market volatility.
