Nasdaq 100 forecast: Microsoft impresses as Alphabet disappoints

Key takeaways

• Alphabet shares are falling despite a strong set of quarterly results, as disappointing figures from Google Cloud stoke fears it is not benefiting from AI tailwinds or gaining ground on larger rivals
• Microsoft has climbed to a three-month high after beating expectations across the board, with investors growing confident the company has a substantial lead in AI over its competitors
• Nasdaq 100 is trading lower in after-hours trade in wake of the results and could test a key support zone once again today

Alphabet stock falls as Google Cloud disappoints

Alphabet shares are down 6% in after-market hours and at their lowest level since the start of October.

The company beat expectations overall. Revenue rose 11% from last year in the third quarter to $76.69 billion and came in ahead of the $75.54 billion pencilled-in by analysts. Alphabet’s core advertising business performed better than anticipated as Google Search and YouTube posted faster growth than expected.

Diluted EPS jumped 46% to $1.55 and beat the $1.45 forecast. The bottom-line grew faster than the top thanks to better margins.

However, the sharp selloff today is a reaction to Google Cloud. The unit has recently turned profitable and started contributing to the bottom-line after showing signs it was progressing faster than hoped as it reaped rewards from AI tailwinds and workloads, but grew slower than expected in the latest quarter.

Google Cloud’s revenue was up 22.4% in the third quarter, which was below the 25% forecast. The fact Microsoft posted stronger cloud numbers is also worrying investors that Google Cloud is not benefiting from AI as much as its larger rivals and struggling to gain ground. Operating profit of $266 million was also nowhere near the $433 million forecast.

Where next for GOOGL stock?

Alphabet shares are down more than 6% this morning and have plunged to their lowest level in almost a month. The sharp fall has seen the stock plunge below two moving averages, the October floor and, more importantly, the rising supportive trendline that has reliably held for over six months!

The 100-day moving average is now back in play for the first time since March, making $129 a key level to watch. Any slip below here risks seeing the stock sink to $127, which has been a level of resistance-turned-support over several months.

On the upside, the immediate level needed to be reclaimed is $133, although a return above $134/$134.50 would be more significant.

Microsoft stock hits 3-month high

Microsoft is up 4% and set to open at a three-month high today after impressing markets with stronger growth than forecast in the first quarter of its new financial year.

Revenue rose 13% from last year to $56.5 billion and came in ahead of the $54.5 billion forecast. Diluted EPS soared 27% to $2.99 and smashed the $2.65 pencilled-in by Wall Street.

Microsoft’s hardware business, which was expected to keep being hit by weak demand for consumer electronics, surprised the markets by returning to growth and demand for its array of software and cloud computing services was stronger than expected. Ultimately, Microsoft beat expectations across the board!

The results from its cloud computing arm were particularly pleasing and have helped bolster Microsoft’s early lead in AI, reinforced by the disappointing figures out from rival Google. Intelligent Cloud revenue grew 19% when analysts had only expected 16%, and revenue from Azure – the most closely-watched unit that forms the backbone of ChatGPT – popped 29% and accelerated from the last quarter, impressing analysts that had expected a mild slowdown.

Where next for MSFT stock?

Microsoft shares are trading 4% higher in after-market hours and trading at their highest level since July. The strong rise means the stock has not only broken through the October ceiling but also the September peak.

We see $351 as the next upside target that needs to be cleared before Microsoft shares can look to break above the 2023-highs of $361.75.

We could now see the September peak provide some support around $341, although the zone suggests it could slip as low as $336.50 before finding a floor if it comes under renewed pressure.

Nasdaq 100 analysis: Where next?

Microsoft and Alphabet are among the largest constituents of the Nasdaq 100, making it the index to watch today. US futures are trading lower in after-hours trading today and the Nasdaq 100 is trailing 0.8% at 14,630.

The index shattered through the supportive trendline that had held firm throughout 2023 on Friday, when the index closed at fresh October-lows. It rebounded yesterday but is back under pressure today. That is bringing the support zone back into play. The index should find support at 14,550 but could sink as low as 14,400 before rebounding. Any slip below here would be significant.

On the upside, the initial target is to move above yesterday’s close at 14,750 and then 14,850 to surpass the ceiling we saw hold throughout the back-end of last month.

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