Microsoft and Google Earnings Amid Tech Outage

After last week's global IT outage, investor focus on tech firms has shifted to cybersecurity over AI in advance of Microsoft and Google reporting Q2 earnings.

A Crash Before the Report

Microsoft experienced a crash before reporting earnings after the close on Thursday. Shares dropped in premarket trading on Friday following a global IT outage impacting Azure and 365 services updated through Crowdstrike. Microsoft said around 8.5 million Windows devices were affected, but all systems were restored before the weekend's start. However, this occurred after the close of Q2 (Microsoft's fiscal Q4), so it will likely feature in question and answer but not reflect in earnings.

Analyst consensus estimates Microsoft will see EPS rise to $2.93 from $2.69 in the prior quarter, with 14.5% sales growth to $65.4 billion. The focus will be on cloud segment growth, Microsoft's largest profit and revenue division. Updates may include AI development with an OpenAI partner and insights on declining board seats at the AI developer. As businesses move to the cloud and AI demands hosting space, Azure and intelligent cloud are expected to be the main drivers of near-future growth.

Google Still Catching Up

Alphabet, Google and YouTube's parent company will report after market close on Tuesday, with focus on increased AI spending. The company has struggled to compete in this area, so investors will want an update on whether spending has started to bear fruit. However, this remains a fraction of the results as Google Ads account for around 88% of revenue. Ad spend generally exceeds the average in election years, but a slowing economy could lead to marketing budget cuts.

Alphabet is forecast to report an EPS increase to $1.85 from $1.44 last year, with 12.9% revenue growth to $84.2 billion. Investors will also be interested in Google's cloud hosting foray, which is its fastest-growing unit. Analysts believe this segment could surpass $10 billion in revenue after 28% growth last quarter, a rate bullish investors hope to maintain in coming quarters.

Google C&H Points to Upside

The share price of Alphabet failed to reach the $200 handle and instead declined to $180, forming regional support. However, the key level is presumed to remain around $150, a region related to a completed cap-and-handle pattern. If bulls manage to preserve the $165 support, there is potential for an extension to approximately $220, based on the measured-move projection of the said formation.

Source: SpreadEx / Alphabet C

Key Takeaways

After last week's global IT outage, investor focus on tech firms has shifted from AI to cybersecurity ahead of Microsoft and Google reporting Q2 earnings. Both companies are forecast to report higher EPS, led by sales growth for Microsoft and revenue growth for Google. Microsoft focus will be on cloud growth, whereas Google focus will be on increased AI spending. However, Google ads remain the main driver, accounting for around 88% of revenue. Although Ad spend usually rises in election years, a slowing economy could cut marketing budgets.