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.

The post Big Tech stocks: here’s a look at Microsoft’s and Alphabet’s earnings appeared first on The Twelfth Magpie.

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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.

So, what’s the best move for growth investors like myself now? Should I dump my Big Tech stocks and should I be buying more?

Nasdaq tech stocks: where to from here?

In the short term, I wouldn’t be surprised to see Nasdaq tech stocks underperform.

We’ve seen this kind of shift in the stock market before. Earlier this year, 10-year US Treasury yields spiked up to around 1.75% on the back of optimism over the economic recovery. This resulted in a massive shift out of the technology sector (higher rates reduce the value of these companies’ future earnings) and into cyclical stocks.

Big Tech stocks such as Apple and Amazon were hit hard. Between late January and early March, Apple’s share price fell from around $145 to $116 – a decline of about 20%. Similarly, between early February and early March, Amazon’s share price fell from around $3,400 to $2,880 – a decline of around 15%.

US Treasury yields dipped between May and August and this saw money flow back into the technology sector. However, yields are now rising again (at quite a fast speed). In recent weeks, the 10-year yield has spiked from around 1.3% to 1.5%. If yields were to rise up to 1.75% again (or above) on the back of recovery optimism, Nasdaq tech stocks would most likely struggle.

I’m getting ready to buy 

I’m not too concerned if Nasdaq stocks underperform in the short term, however. I actually hope they do continue to pull back as I want to buy more of such stocks (mainly Big Tech) for my long-term portfolio. I’ve said before that these are the kind of stocks I’m building my portfolio around.

In my view, the likes of Apple, Amazon, Microsoft, and Alphabet (Google) are likely to grow significantly over the next decade. As industries such as cloud computing, e-commerce, video gaming, electronic payments, and artificial intelligence continue to grow, these companies should see their revenues and profits climb higher. So, I want to have plenty of exposure in my portfolio. If I can buy such new-economy stocks when they’re ‘on sale’, I’ll get more for my money.

Right now, I’m watching the share price declines across the Nasdaq with interest. I’m tempted to start buying now as many of these stocks trade at what I think are reasonable valuations. However, I’m going to be patient. I think the shift out of Big Tech and into cyclicals could have a little further to run. After all, Apple and Amazon are only down about 10% and 7% respectively in this latest market move, which is less than last time.

If we see a few more big down days like yesterday, however, I will most likely step in and buy. Because sooner or later, Big Tech Nasdaq stocks are likely to continue climbing higher, in my view.

The post Nasdaq tech stocks are getting crushed. Here’s my move now appeared first on The Twelfth Magpie.

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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. 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, 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.