Earnings Preview – Will Microsoft and Alphabet Rescue the Nasdaq 100 and S&P 500?

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MICROSOFT AND GOOGLE OUTLOOK:

  • Microsoft and Google’s parent company Alphabet will announce quarterly results on Tuesday after the market close
  • For GOOGL, investors forecast EPS of $25.63 on revenue of $68.13 billion. For MSFT, the consensus earnings estimate is $2.18 per share on revenue of $49.03 billion
  • Microsoft and Alphabet’s quarterly performance and forward-looking commentary will be key for the tech sector and for the S&P 500 and the Nasdaq 100

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Microsoft (MSFT) and Alphabet (GOOGL) will announce corporate earnings for the first three months of the year on Tuesday after the closing bell. These quality mega-cap companies have some of the largest weightings in both the S&P 500 and Nasdaq 100, so their stock performance can definitely set the tone for the broader market and skew near-term price action at the index level. For this reason, investors will be keeping a close eye on their quarterly results and, more importantly, their forward-guidance.

With the S&P 500 in correction territory and the Nasdaq 100 in a bear market, pressured by rising yields and fears that the U.S. economy is headed for a hard landing, Wall Street desperately needs a reason to be optimistic about the outlook and start deploying capital into risk assets again. If Microsoft and Alphabet deliver robust numbers as in the previous quarter and issue constructive forward-looking commentary, relentless selling activity could start to abate, paving the way for the technology sector to stabilize. However, if these two heavy hitters disappoint and sound a note of caution about the future, as Netflix did, all bets are off. In the lattercase, traders should brace for more pain and turbulence in the equity space, at least in the very short-term.

Some of these tech darlings often command higher valuation multiples than the market (P/E for example) because they have been able to deliver robust growth no matter the economic landscape, but if their fortunes begin to change, investors may become more reluctant to pay a premium to own them.

ALPHABET (GOOGL) EARNINGS

Analysts expect EPS of $25.63 on revenue of $68.13 billion. For reference, the company has a track record of stellar execution, in fact, it has handily beat both top- and bottom-line consensus forecasts over the past six quarters, with its share price higher the day after the earnings announcement on every occasion during these observations. Obviously, past performance is not indicative of future results, but it underscores that management has done a good job in growing the business and profits.

In terms of financial results, traders should focus on search engine and YouTube advertising revenue amid headwinds from the Russia-Ukraine conflict and strong competition from TikTok. It is also necessary to keep an eye on Alphabet’s cloud services segment to glean insight into the unit’s momentum in this increasingly crowded and competitive market. Last but not least, investors should examine how leadership is maneuvering around current economic challenges, such as rising inflation, and how the trend in consumer prices is affecting the company’s costs and margins. Any large share repurchase authorization will be viewed as bullish.

MICROSOFT (MSFT) EARNINGS

Investors expect ESP of $2.18 on revenue of $49.03 billion. For Microsoft, it is important to watch how the cash cow “Intelligent Cloud” business, which contains Azure, GitHubt and Windows Server, performs and whether it maintains a strong growth trajectory amid intense market competition.

The results of the “More Personal Computing” unit, which includes Windows, advertising, devices, and gaming, will also be key, but more important will be forward-looking comments on the unit’s prospects following the $75 billion cash deal to acquire Activision Blizzard (videogame maker). Rising inflation, supply bottlenecks and weakening consumer spending are headwinds that may weigh on the company’s second-largest revenue-generating business, but guidance is needed to better assess how these variables are undermining growth and what management is doing to limit their detrimental impact.

Source: EarningsWhispers

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—Written by Diego Colman, Contributor