25 November 2023
If you are covering the latest financial results from Microsoft and Alphabet, please find below a comment from Ben Barringer, technology analyst at Quilter Cheviot:
Microsoft
“Microsoft produced very solid numbers in its latest results, with revenues beating expectations and as a result earnings per share growth coming in strong. Microsoft has done an excellent job at creating a one-stop tech shop in recent years and these results underscore those efforts. They can offer businesses everything from infrastructure and data servers to applications to cyber security. Throw in Xbox and LinkedIn and you have every base covered.
“The cherry on top of the cake is now its artificial intelligence offering. It has strong interest in its ‘Co-Pilot’ products that integrates artificial intelligence into its products especially Office 365 products – which in themselves are performing very well – while also seeing good acceleration in its cloud computing business as it harnesses the power of AI. With it now stealing market share from Amazon and Alphabet, Microsoft has become one of the AI powerhouses in the market.
“The other encouraging piece of information from these results is that the PC business has returned to growth and is back trading at pre-pandemic levels. Microsoft is looking to take advantage of these positive numbers by increasing capex and really investing for the future. As an investor, if there was one company you wanted to own in the tech space, it would have to be Microsoft at this stage.”
Alphabet
“Where there is a beneficiary, there also has to be someone losing out and it appears that might just be Alphabet. The company is 25 years old this year and while still in very good health, the market does have concerns about its current direction.
“Revenues were up 11%, however, Alphabet has had to increase its costs and as such it missed its expectations on profits as margins disappointed. On its own the results are not that bad as some of the increase in costs are one offs and higher spend on research and development. However, with that higher spend, people have become concerned about the lack of profit leverage in the business.
“Alphabet is no longer gaining lots of market share in the cloud computing market and with the macroeconomic picture weak, its outlook isn’t as strong as it could be, especially given Microsoft’s gains. It is as a result fighting back on this front by increasing capex on the cloud business, but can they continue to deliver with increased costs, given the march Microsoft has stolen on them with Open AI and Chat GPT. It will be an area to watch closely going forward.”
