Why Microsoft stock isn’t getting crushed like Google stock after its earnings report

While Alphabet’s (GOOGL) stock is getting crushed on Thursday after earnings, Microsoft (MSFT) is largely getting a pass. Another way of saying it: Microsoft shares aren’t significantly trading down in sympathy. And there is one simple reason why this is the case.

Microsoft’s quarter is being seen as one of higher-than-expected growth that is sustainable, while Alphabet’s quarter was sluggish and hinted at slowing growth rates in coming quarters.

Microsoft’s Azure sales growth came in about 300 basis points above analyst estimates. Overall sales for the important cloud business grew 48%, excluding currency fluctuations. Execs guided to 49% to 50% Azure sales growth in the current quarter, ahead of consensus estimates by four percentage points.

The company’s capex came in about $5 billion below estimates, and other parts of the business showed sales upside. Sales and earnings for the quarter came in ahead of analyst forecasts.

“Net/net, these results increase our confidence in the company’s ability to sustain mid/upper-teens revenue growth and that strong cost of goods sold/expense operational efficiencies should be supportive of expanding operating margins,” said stifel analyst Brad Reback.

Alphabet shares tanked 12% after a third quarter that could best be characterized as a letdown, both on its own and versus Microsoft.

First, Google’s search business notched sales of $63.4 billion, below the $64.9 billion expected. The miss fueled fears Google’s search empire is being chipped away by the likes of Claude and ChatGPT, despite massive investment by Google.

Second, Google posted negative free cash flow of $9.1 billion versus a Wall Street estimate of negative $3.5 billion. In a market getting jittery about negative free cash flow at Big Tech (see the reaction to Meta’s (META) results last week, when it also had negative free cash flow for the first time in years), Google’s print stunk up the joint.

“Alphabet’s 3Q results reinforced concerns we had heading into the print, re: Search is decelerating and margins have peaked near-term. This could create an air pocket over the next 1-2 quarters as investors await signs for whether this is transitory or structural,” KeyBanc analyst Justin Patterson said.

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