These tech titans’ quarterly performances serve as litmus tests for market sentiment and economic health. As stalwarts in their respective domains, Microsoft’s innovative software solutions and Alphabet’s pervasive online presence not only shape industry standards but also hold the power to sway investor confidence and dictate market trends. The quarterly results are eagerly awaited by analysts and investors alike, as their outcomes often reverberate far beyond their individual stock prices. Indeed, the ripple effects of Microsoft and Alphabet’s performance can be felt across major indexes, with the S&P 500 and NASDAQ Composite often hanging in the balance of their success or failure.

Both key members of the ‘Magnificent Seven’, Microsoft and Google picked up where they left off last quarter delivering strong results in March. We take a closer look below:

Back in March we wrote why we own Microsoft and with the release of recent results our conviction remains.

Microsoft’s March 2024 quarterly performance showcased impressive growth across key financial metrics. Revenue grew to $61.9 billion, marking a 17% increase compared to the previous year, while operating income rose by 23%, driven by growth in Artificial Intelligence (AI). In the Productivity and Business Processes segment, revenue reached $19.6 billion, climbing 12%, with strong performances from Office Commercial products and cloud services, Office Consumer products, LinkedIn, and Dynamics products and cloud services.

The Intelligent Cloud segment saw revenue of $26.7 billion, representing a strong 21% increase, driven primarily by growth in server products and cloud services, particularly Azure which itself grew by 31%.

Revenue in the More Personal Computing segment reached $15.6 billion, rising 17%, fueled by increased Windows revenue, Xbox content and services revenue driven by the Activision acquisition, and growth in search and news advertising revenue. Additionally, Microsoft returned $8.4 billion to shareholders through share repurchases and dividends during the third quarter.

Microsoft anticipates solid performance in the following quarter, with revenue projected between $63.5 billion to $64.5 billion, which was slightly below consensus estimates.

For fiscal 2025, double-digit revenue growth is expected, albeit with operating margins declining marginally. The company remains a leader in AI, driven by its partnership with OpenAI, with demand exceeding capacity, indicating future growth. Capital expenditures are set to increase notably, primarily due to cloud and AI infrastructure investments, reflecting Microsoft’s commitment to scaling its operations in response to growing demand. Azure revenue growth in Q4 is forecasted at 30% to 31%, propelled by Azure consumption and AI contributions.

Alphabet witnessed a remarkable 10% share price increase following the release of its quarterly results sending the shares to all time highs. The move marked its sharpest rally since July 2015.

The tech giant reported stellar financial performance, with revenue reaching US$80.54 billion, a significant beat of analyst expectations of $78.59 billion and a 15% increase from the previous year. The growth reflects its fastest increase since early 2022. Earnings per share stood at US$1.89, again surpassing analyst expectations of US$1.51 per share. The impressive performance above those expectations was reflected in the market’s enthusiasm. Alphabet outperformed predictions for both YouTube advertising revenue and Google Cloud revenue, further solidifying its market dominance.

A further catalyst to the share price move, Alphabet announced its inaugural dividend of US$0.20 per share. The company intends to pay quarterly cash dividends in the future while also unveiling a US$70 billion buyback program, reflecting its confidence in its financial position and growth prospects. Alphabet’s market capitalisation is closing in on $2.1 trillion at the time of writing.

Alphabet’s balance sheet showcased impressive strength, boasting over US$108 billion in cash and equivalents, while maintaining US$13.2 billion in long-term debt. The company also generated an operating cash flow of US$23.5 billion for the quarter, underlining its financial resilience and operational strength.

Sundar Pichai, CEO, said:

Alphabet’s outlook emphasises efforts to moderate expense growth to accommodate increased investment in artificial intelligence, aiming for full-year 2024 operating margin expansion. Despite taking Google over 15 years to reach $100 billion in annual revenue, the company has achieved over $300 billion in just six years, driven by Search, YouTube, and Cloud. Expectations include YouTube and Cloud exiting 2024 with a combined annual run rate exceeding $100 billion. With reported capital expenditure of $12 billion in Q1, investment focuses on technical infrastructure, particularly in servers and data centres, reflecting confidence in AI’s potential. Quarterly CapEx is projected to remain robust throughout the year.

With another successful quarter in the books, Microsoft and Alphabet continue to stand as pillars of innovation and market influence. As the AI story unfolds these two market giants will continue to have enormous influence on the path forward. As they navigate the digital frontier, their strategic investments and operational strengths reaffirm their status as industry leaders, driving investor confidence and shaping the future of technology.

Disclaimer: Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) are currently held in TAMIM Portfolios.