Big Tech stocks: here’s a look at Microsoft’s and Alphabet’s earnings

Microsoft and Alphabet just released their earnings for the third quarter of calendar 2021. Here, Edward Sheldon takes a look at the numbers.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I’ve said before that I’m very bullish on Big Tech stocks. Companies such as Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG), Apple, and Amazon are generating huge growth in today’s digital world, and I can’t see this changing any time soon. That’s why I’m building my own portfolio around them.

Yesterday, both Microsoft and Alphabet posted their earnings for the third quarter of the 2021 calendar year. So let’s take a look at the numbers. Are these Big Tech-ers still growing at a rapid rate?

Microsoft: a flawless set of results

Microsoft’s results for the first quarter of fiscal FY2022 were excellent and have been described by CNBC’s Jim Cramer as “flawless.”

For the three months ended 30 September, revenue came in at $45.4bn, up 22% year-on-year, and above Wall Street’s estimate of $44bn. Meanwhile, operating margin hit 45% versus the consensus forecast of 42.4%. Non-GAAP earnings per share (EPS) amounted to $2.27, well above the consensus EPS forecast of $2.08.

One of the highlights for me was the growth in the company’s cloud computing division. Revenue in Intelligent Cloud amounted to $17bn, up 31% year-on-year while Azure and other cloud services revenue growth was 48% at constant currency.

Another highlight was capital returns to shareholders. During the quarter, Microsoft returned a huge $10.9bn to investors in the form of dividends and share buybacks. This was up 14% year-on-year.

Finally, it’s worth touching on CEO Satya Nadella’s comments on inflation. “Digital technology is a deflationary force in an inflationary economy. Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity,” he said.

What he’s essentially saying here is that Microsoft can help companies in the battle against rising costs by boosting their productivity. I think that’s something to keep in mind in the current inflationary environment.

Alphabet: strong growth in cloud

Alphabet’s results for the third quarter of FY2021 were also strong. Revenue amounted to $65.1bn, up 39% year-on-year. Analysts had been expecting $63.5bn. Meanwhile, EPS was up 71% to  $27.99, easily beating the consensus estimate of $23.73.

One of the highlights for me was growth in the YouTube business. Here, revenue came in at $7.2bn, up 43% year-on-year. Encouragingly, the company did not seem to be badly impacted by Apple’s privacy changes like Facebook and Snap were.

Another highlight was growth in the cloud division. Here, revenue amounted to $5.0bn, up 45% year-on-year. During the quarter, Alphabet also generated free cash flow of $18.7bn and repurchased $12.6bn worth of stock.

Overall, it was another very good quarter from Alphabet.

I’m still bullish on these Big Tech stocks

It’s worth pointing out that both of these Big Tech stocks have had a great run over the last 12 months. MSFT is up around 43%, while GOOG is up about 70%. After these kinds of performances, there’s always the chance of a short-term pullback and that could mean investors like me nursing some losses (hopefully only short term).

However, these results from the two Big Tech companies indicate they still have plenty of momentum, I feel. So I’m going to continue to build my investment portfolio around them.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Edward Sheldon owns shares of Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Under £14 now, Persimmon’s share price is trading at less than half its fair value by my reckoning

Persimmon’s share price fell a lot over the past year, but I think a new home-building initiative and improved macroeconomic…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this FTSE 100 pharma gem now a brilliant bargain?

This FTSE 100 pharmaceutical giant has been hit by fears of US tariffs and litigation over a key product, but…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Is Warren Buffett losing his touch?

Our writer's noticed that Warren Buffett’s investment vehicle has underperformed the S&P 500 during three of the past four years.…

Read more »

Investing Articles

Non-energy minerals are the top performers in 2025. These small-cap FTSE shares are leading the charge

Mark Hartley examines which sectors are doing well in 2025 and the FTSE shares that investors should consider to benefit…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Buying 10,000 Vodafone shares generates a passive income of…

Vodafone shares have had a rough ride, with dividends slashed in half. But with its turnaround making steady progress, is…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Buying 1,000 Aviva shares generates an income of…

Aviva shares could be primed to thrive in the long run if its takeover of Direct Line is a success,…

Read more »

Investing Articles

At today’s price, buying 1,000 British American Tobacco shares generates a second income of…

Tobacco companies may not be popular, but the British American Tobacco share price is on the rise, along with its…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

The cheapest UK stock in my ISA is…

This UK stock currently trades at a massive discount to the market. Edward Sheldon believes it's mispriced and that there's…

Read more »