Why Microsoft Stock Isn’t Crushed Like Google Stock After Its Earnings Report

While Alphabet (GOOGL) stock is crushed Thursday after earnings, Microsoft (MSFT) gets a pass.

Another way to put it: Microsoft stock doesn’t trade on sympathy.

And there is a simple reason for this.

Microsoft’s quarter is considered one of higher-than-expected and sustainable growth, while Alphabet’s quarter was slow and hinted at slowing growth rates in future quarters.

Microsoft’s Azure sales growth was about 300 basis points better than analysts’ estimates. Overall sales of the large cloud business increased 48%, excluding currency fluctuations.

Executives expect Azure sales to grow 49% to 50% in the current quarter, four percentage points ahead of consensus estimates.

The company’s investments fell about $5 billion short of estimates, and other areas of the business posted higher sales.

Sales and profits for the quarter exceeded analysts’ forecasts.

“On a net/net basis, these results reinforce our confidence in the company’s ability to sustain mid/high-end revenue growth and that strong cost of goods sold/expense operating efficiencies should support operating margin expansion,” said Stifel analyst Brad Reback.

Microsoft shares rose 4% in premarket trading.

Alphabet shares fell 10% in premarket trading after a third quarter that could be described as a disappointment, both on its own and relative to Microsoft.

First, Google’s search business reported revenue of $63.4 billion, lower than the expected $64.9 billion. This failure fueled fears that Google’s search empire would be eaten away by companies like Claude and ChatGPT, despite Google’s massive investments.

Second, Google reported negative free cash flow of $9.1 billion, compared to Wall Street’s estimate of $3.5 billion. In a market worried about negative free cash flow at Big Tech (see the reaction to Meta (META) results last week, when it also had negative free cash flow for the first time in years), Google’s impression hurt.

“Alphabet’s third-quarter results reinforced concerns we had prior to the release that search is slowing and margins have peaked in the near term. This could create an air pocket over the next 1-2 quarters as investors wait for signs as to whether this is transitory or structural,” said Justin Patterson, an analyst at KeyBanc.

Brian Sozzi is the editor-in-chief of Yahoo Finance, host of the Sozzi unleashed morning show, the ‘Powerful actors with Brian Sozzi podcast and member of the Yahoo Finance editorial leadership team.