Alphabet and Microsoft hope big tech can handle slow economy

Alphabet Inc, Microsoft Corp and Texas Instruments Inc posted double-digit quarterly revenue growth on Tuesday and were optimistic about the coming months, reassuring investors who were worried that the tech industry would face tough times in the second half of the year.

Shares in all three companies rose late in trading, spurring S&P 500 futures and spurring tech stocks. Earnings reports from the three industry giants set the tone for the week, which will include results from the likes of Meta Platforms Inc, Qualcomm Inc, Apple Inc, Inc and Intel Corp.

Microsoft has given an encouraging sales forecast for the current fiscal year, calming fears that a strong US dollar and a weakening economy will devastate sales. Chip maker Texas Instruments also gave a bullish outlook, indicating sales and earnings this quarter are likely to top Wall Street estimates.

And Alphabet, the parent company of search giant Google, has managed to post ad revenues that beat analysts’ expectations.

The slowdown in online advertising was of particular concern to investors, who cut stocks of Snap Inc and Twitter Inc following their earnings reports last week.

“I would take this report as a sigh of relief,” Dan Morgan, Senior Portfolio Manager at Synovus Trust Co, said of Alphabet’s results. “You’re looking at an environment where overall ad spending is definitely slowing down, but Google can still do its best.”

The three reports reflected underlying resilience, if not outright strength, in the industry’s four main pillars: digital advertising, cloud computing, information technology spending and chips. However, it wasn’t all good news. The skyrocketing US dollar, driving down the cost of overseas sales, is hurting revenue, especially at Microsoft. And Texas Instruments has seen a decline in demand for chips in consumer products.

Alphabet missed out on analyst estimates for its YouTube and cloud business. The company’s earnings were also revealed, with earnings of $1.21 per share, compared to an estimate of $1.32.

The companies also pointed to obstacles to growth that may arise in the coming months. Advertisers have begun to cut costs, being cautious in a volatile economic climate.

Alphabet CFO Ruth Porat used the term “ad rollback” several times in a conference call with analysts. “It’s clear that Google won’t have a job in the last half of the year,” said analyst Evelyn Mitchell of Insider Intelligence.

Despite this, the general tone of Google’s comments pleased investors. The search ad market is more resilient than the social media ad market, which isolates Google’s business from competitors like Snap and Facebook.

At Microsoft, the company has signed a record number of more than $100 million and $1 billion in Azure cloud contracts, CFO Amy Hood said in an interview.

Hood added that commercial orders, a measure of future sales to corporate customers, were “significantly” better than the company expected, up 25%.

Texas Instruments, one of the world’s largest chip makers, said demand for semiconductors used in industrial equipment and vehicles is high. It has also rebounded in China after that country began lifting Covid-related restrictions in a country that closed factories.

South Korean chip maker SK Hynix Inc also performed well, helped by the downside of a strong US dollar. A weaker Korean won — along with robust demand — contributed to a 56% increase in profits last quarter. However, the company has been prudent about the future, saying it will “thoroughly” review its investment plan for 2023.

Investors will get a deeper insight into the state of digital advertising, chips and IT spending on Wednesday when Meta, Qualcomm and ServiceNow Inc release their latest data.

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