The S&P 500 index continued its upward surge last week, rising 0.85%. In 2023, the S&P 500 index has gained close to 20%, despite a weak macro environment. The equity markets will be impacted by a slew of Q2 earnings which will be reported over the next few days.
Recently, Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) released Q2 earnings. While Microsoft underwhelmed estimates, Alphabet stock surged around 10% following its Q2 results. Let’s see why.
Why is Alphabet stock surging post Q2 earnings?
Alphabet shares experienced a roughly 7% surge in extended trading on Tuesday as the company's revenue and earnings exceeded anticipations, fueled primarily by its cloud-computing unit's growth.
Here's the breakdown:
In Q2, Alphabet reported:
- Earnings: $1.44 per share, surpassing the Refinitiv expectation of $1.34 per share.
- Revenue: $74.6 billion, exceeding the Refinitiv projection of $72.82 billion.
Additionally, Alphabet reported these notable figures:
- YouTube ads: $7.67 billion, outpacing the Street Account's forecast of $7.43 billion.
- Google Cloud: $8.03 billion, higher than Street Account's $7.87 billion prediction.
- Traffic acquisition costs: $12.54 billion, slightly higher than the Street Account's $12.37 billion estimate.
Alphabet reported a 7% increase in its second-quarter revenue, from $69.7 billion in the year-earlier period to $74.6 billion.
It marks the fourth consecutive quarter that the parent company of Google has posted single-digit growth amidst a contraction in digital advertising expenditure due to economic uncertainties. Analysts predict a return to double-digit growth is likely in the fourth quarter.
Despite these challenges, Google's search revenue, the lion's share of its ad business, maintained steady growth throughout the quarter. This was a welcome sign for investors who have expressed concern about traditional search users migrating towards generative AI chatbots from OpenAI and Microsoft.
Google's cloud unit, encompassing infrastructure and productivity apps, saw a revenue increase of 28%. The division, which first turned profitable on an operating basis in the first quarter, posted an operating income of $395 million in the second quarter, reversing a loss of $590 million from a year earlier.
Meanwhile, Google's ad revenue nudged by 3.3% to $58.14 billion from $56.29 billion the previous year. YouTube ads, registering a rise from $7.34 billion the year before to $7.67 billion, surpassed analyst predictions. The video platform, however, continues to face stiff competition in short-form videos from rivals such as TikTok.
Investors will closely watch the earnings of tech giants such as Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) in the upcoming week.
Labor market and interest rates
On Tuesday, the Labor Department will release its June Job Openings and Labor Turnover Survey (JOLTS) report. The report details the month's data on job openings, hires, resignations, and separations.
Job openings are anticipated to have decreased to 9.5 million in June, down from 9.82 million in May, indicating a slowdown in availability. On Wednesday, ADP, the payroll service provider, will deliver its National Employment Report, which monitors growth in private-sector employment.
A growth of 210,000 is expected for July, following a half-million increase in June. These updates could establish expectations for Friday's nonfarm payrolls report. It's estimated that US employers added 184,000 jobs in July, a slight decrease from the 209,000 in June, suggesting the Fed's interest rate hikes are tempering the labor market. The unemployment rate is expected to remain steady at 3.6%.
Policymakers at the Bank of England (BoE) will convene for their latest meeting on monetary policy on Thursday. The UK's central bank is forecast to raise interest rates by a quarter of a percentage point to 5.25%, making it the 14th consecutive rate increase since the tightening efforts began in late 2021 to counteract surging prices.
The UK is experiencing inflation below 8%, the highest among the G7 nations, and it has not eased as quickly as in other economies. According to a Reuters poll, BoE officials are likely to increase their benchmark rate to a high of 5.75% by the end of the year, setting borrowing costs at their peak since 2007.
Related: MSFT Stock: How Did Microsoft Perform in the June Quarter?