Google, Microsoft spur hope Big Tech can handle slow economy

SAN FRANCISCO (BLOOMBERG) – Google parent Alphabet, Microsoft and Texas Instruments posted double-digit quarterly revenue growth on Tuesday (July 26) and expressed optimism about the coming months, reassuring investors who had been fretting that the technology industry was poised for a dour second half.

Shares of all three companies rallied in late trading on Tuesday, spurring S&P 500 futures and giving a boost to tech peers. The earnings reports from the trio of industry giants set the tone for a week that will include results from heavy hitters like Meta Platforms, Qualcomm, Apple, Amazon.com and Intel.

Microsoft gave an encouraging sales forecast for the current fiscal year, soothing fears that the strong US dollar and a weakening economy would ravage sales. Chip manufacturer Texas Instruments also offered a bullish forecast, indicating that sales and profit this quarter would likely exceed Wall Street estimates. And Alphabet, the parent company of search giant Google, managed to post advertising revenue that surpassed analysts’ expectations.

An online advertising slowdown had been a particular concern of investors, who dragged down shares of Snap and Twitter following their earnings reports last week.

“I would construe this report as a sigh of relief,” Mr Dan Morgan, a senior portfolio manager at Synovus Trust, said of Alphabet’s results. “You’re looking at an environment where the overall ad spend rates are definitely slowing down, yet Google still was able to deliver above and beyond.”

The three reports reflected underlying resilience, if not outright strength, in four of the industry’s main pillars: digital advertising, cloud computing, information technology spending and chips. Still, it was not all good news.

The surging US dollar, which reduces the value of foreign sales, is eroding revenue – especially at Microsoft. And Texas Instruments saw weaker demand for chips in consumer products.

Alphabet missed analysts’ estimates for its YouTube and its cloud businesses. The company’s earnings also came in light: Profit was US$1.21 a share, compared with an estimate of US$1.32.

The companies also pointed to growth roadblocks looming in the coming months. Advertisers have begun to pull back on spending, exercising caution in an uncertain economic environment. Alphabet chief financial officer Ruth Porat used the term “ad pullback” several times on a conference call with analysts.

Analyst Evelyn Mitchell of Insider Intelligence said: “It’s clear Google has its work cut out for it in the back half of the year.”

Even so, investors were cheered by the overall tone of Google’s remarks. The market for search advertising is more resilient than that of ads on social media, insulating Google’s business relative to competitors like Snap and Facebook.

At Microsoft, the company signed a record number of Azure cloud contracts worth more than US$100 million (S$139 million) and US$1 billion, CFO Amy Hood said in an interview.

Commercial bookings, a measure of future sales to corporate customers, were “significantly” better than the company expected, rising by 25 per cent, an indication corporate demand for Microsoft software remained strong in the quarter, Ms Hood added.

Texas Instruments, one of the world’s biggest chipmakers, said demand for semiconductors used in industrial machinery and vehicles was strong. It also saw a rebound in China after that country began lifting Covid-19-related lockdowns in the country, which had shuttered factories.

South Korean chipmaker SK Hynix delivered strong results as well, helped by the flip side of a strong US dollar.

The weaker Korean won – along with resilient demand – contributed to a 56 per cent gain in profit last quarter. Still, the company was circumspect about the future, saying it would “carefully” review its 2023 investment plan.