Tuesday's Market Minute: Now It's Time for the Heavy Hitters: MSFT & GOOGL

Consensus Revenue Estimate: $68.85 billion

Consensus Adjusted EPS: $1.15

Implied Market Move: 5.19%

Google GOOGL has been a leader in the ad space by leveraging its search engine to drive both topline and bottom-line growth. However, the market is anticipating a slowdown in advertising spending for the quarter, which could impact revenue from its YouTube and Google Network business. If a slowdown is not realized, this could be the catalyst for a strong earnings surprise. Google advertising constitutes approximately 78% of total revenue, according to their most recent report.

Google Cloud has been a growth driver for the company as it competes with Microsoft’s Azure and Amazon’s AWS platform. This business segment is not reliant on advertising and is built on fee revenue from companies that utilize the wide range of services it offers, like Google Workspace. The business segment is still in its infancy stages as far as turning a profit, with an operating loss of $480 million last quarter.

Microsoft MSFT:

Consensus Revenue Estimate: $51.03 billion

Consensus Adjusted EPS: $2.22

Implied Market Move: 4.3%

Microsoft surprised the market last quarter with its very open and transparent near-term outlook for the U.S. economy, warning of a slowdown within Azure and product sales, which would impact the services segment of the business as products and services are uniquely intertwined. 

Nevertheless, the stock has risen by $40 since its January earnings announcement as the Street expects AI to drive growth in an accelerated fashion, and Microsoft's investment into OpenAI is perceived to have given Microsoft a head start in the space. No doubt, this earnings announcement will be focused on the conference call commentary. Last quarter, AI was mentioned over 30 times. This quarter, investors want to hear about the progress of this initiative, how Microsoft will integrate AI into their software offerings, and any preliminary results after launching “The New Bing,” which features ChatGPT capabilities.

*Estimates provided by Earnings Whisper

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