Big numbers, everybody. Big numbers.
Alphabet and Microsoft reported quarterly results after the bell on Wall Street Wednesday. Spoiler alert: Both companies are doing pretty well, but only one’s likely to get a round of applause from investors on Thursday.
Alphabet ran up $127.6 billion in overall revenue last quarter, a marginal miss. The ex-TAC print likewise fell a bit short. The top-line did extend a long run of accelerating growth rates, though. The YoY pace was 24.7% for Q3, the quickest since 2021’s December quarter.
The figure above shows Google Cloud growth, which more than doubled to $30.71 billion, well ahead of consensus.
That’s where the good news stopped for Alphabet, though. Everything other than Cloud missed. Free cash flow was negative to the tune of $9.07 billion, a larger hole than expected, while capex was $51.36 billion, well below consensus. You can interpret that as you see fit (maybe ask Claude), but it feels a little ominous in the context of the current market zeitgeist. The optic’s made even more challenging by a sizable operating income miss.
Sundar Pichai lauded the Cloud result, said demand for the company’s AI solutions is “huge,” and described interest in its TPU systems (which it’s developing with Broadcom) as “strong across a wide range of customers.”
The figure above shows you Cloud’s share of overall revenue. It’s rising rapidly, but it’s not a big enough part of the business yet to make a Cloud beat the trump card.
With the caveat that it’s never safe to pontificate before the analyst call, I don’t see this report being especially well-received. The deeper-than-expected FCF decline coupled with a capex “miss” and a meaningful whiff on operating income raises a slew of uncomfortable questions.
As for Microsoft, Azure growth was 48%. I’m not sure there’s any other way to describe that besides “robust.” It’s the fastest since the March 2022 quarter and as the figure below shows, there’s some real momentum there.
Overall sales grew a healthy 19% to $92.3 billion, a comfortable beat.
Satya Nadella delivered a pretty impressive AI-themed word salad. By “helping organizations build and own their own intelligence, and earning trust through agent safety and security,” Microsoft’s “translating innovation into growing adoption and real-world impact.”
Again: An AI-themed word salad. Thankfully, Amy Hood was there to simplify. “Results exceeded expectations across revenue, operating income and EPS,” she said. (Thanks, Amy. That’s really all most of us need to know. That and the Azure print.)
With the same caveat to account for the necessity of listening to the call (which I’m not gonna do), I don’t see anything to dislike about Microsoft’s numbers. And don’t forget: They’re cutting jobs and offering buyouts to tens of thousands of employees. Healthy revenue growth, higher-than-expected profits and layoffs. What’s not to like?
