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.
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.
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