IIf you are a fan of SaaS (software as a service) stocks, Microsoft and Alphabet cannot be missed as mega-cap companies. Cloud computing is becoming a key business segment attracting the attention of investors. Both companies were strong in earnings results last quarter, as well as positive future guidance. But remember the advice was given before the war in Ukraine, by now the challenges remain regarding the war-induced slowdown in customer spending, high inflation and rising interest rates, which makes investors more sensitive to the pace of growth and how these companies navigate their businesses through the bumpy journey.

Microsoft

Azure cloud revenue is a key metric

Speaking of cloud computing, Amazon’s AWS accounts for 33% market share, followed by Microsoft Azure at 21%, Google Cloud Platform at 10%, then Alibaba at 6%. Despite Amazon’s dominance, Microsoft Azure is gaining more and more popularity among enterprise customers through its all-in-one service, where its customers tend to have a long relationship with a more compatible package price. In last quarter’s earnings report, Microsoft’s chief financial officer said demand remains strong for its products across the company, and the main driver of the business, Azure, will accelerate growth in the future. third trimester.

However, Microsoft’s revenue growth slowed to 20% in the second quarter of fiscal 2022 from 22% in the first quarter. The key business segment, Azure cloud, grew 46% and posted a fourth straight quarterly gain of 50%, the slowest quarterly pre-performance in two years. The company expects revenue growth of $48.5 billion to $49.3 billion in the third quarter, or 18% annually, with analysts forecasting EPS of $2.18, a growth of 12 % over one year, all of which are lower than the last quarter. But Microsoft is expected to increase its profit margin due to strong demand and robust sales of cloud services.

Microsoft failed to re-enter above the 200-day moving average

Source: CMC Markets as of April 22, 2022 (Click to view enlarged chart)

Microsoft (MSFT) stock price staged a bearish reaction just below its former major March 23, 2020 ascending channel support on March 31, 2022 and broke below the key psychological 200-day moving average on the 6th April 2022. Over the past four weeks, MSFT is down -13%, and Friday April 22nd’s closing level at 273.97 is just a hair above the midpoint support at 271.60 which is formed via the February 24/March 8, 2022 lows.

The medium-term bearish momentum remains intact as seen in recent observations seen in the daily RSI oscillator with a bearish break below and a retest of its corresponding former ascending support on April 20, 2022.

These bearish elements suggest that the major uptrend phase of MSFT in place since the March 23, 2020 low may have been damaged and current price actions are likely undergoing a potential multi-month corrective downstreak. If MSFT price action can be contained below key medium-term pivot resistance at 319.20, further potential decline could unfold towards the next support at 241.10/239.20 in the first leg (former congestion zone from March 11, 2021 to May 19, 2021, 50% Fibonacci retracement of the major uptrend from the March 23, 2020 low to the November 22, 2021 high and 1.00 Fibonacci extension of the lower move from the higher November 22, 2021 high to March 8, 2022 low projected from March 30, 2022 high).

On the other hand, a breakout with a daily close above 319.20 negates the bearish tone for an upward compression to retest the current all-time high of 343.80/349.70.

Alphabet

Decrease in YouTube advertising and increase in Google Cloud revenue

Alphabet beat earnings estimates but missed revenue expectations last quarter. Its YouTube ad revenue fell short of consensus due to competition from TikTok, despite jumping 33% from a year ago. YouTube’s market share is expected to continue losing to its rivals. Its search ad network is facing global headwinds of slowing customer spending.

Google Cloud’s revenue beat estimates in the fourth quarter, becoming a key business driver. Aiming to switch customers from Amazon and Microsoft, Google Cloud is focusing on cybersecurity by investing billions of dollars in security offerings. It will be essential to see if the investment of the pioneer of online research will bear fruit.

Overall, slower EPS and revenue growth is expected for Alphabet’s next report, with EPS at $26.17 vs. $30.69 and $68.05 billion vs. $75.33 billion. dollars in the last quarter. Analysts forecast annual revenue growth of 23% (compared to 32% in the fourth quarter). Stock performance will depend on whether earnings exceed an already reduced expectation and how management views the company’s prospects.

Alphabet also announced a 20-to-1 stock split with the July 1 offer date, which could help preserve the stock price.

Alphabet’s Large Uptrend Phase Has Been Damaged

Source: CMC Markets as of April 22, 2022 (Click to view enlarged chart)

Alphabet’s (GOOGL) share price hit a new all-time high of 3,028 on Feb. 2, 2022 after rising +9.7% following the Q4 2021 earnings release that accompanied the announcement of its division. expected shares of 20 to 1.

But its price actions failed to break above its previous major high of November 19, 2021 and fell -21% to a low of 2,378.84 last Friday, April 22. Additionally, it has staged an earlier bearish breakout from its major rising trendline support in place since the March 23, 2020 low on April 12, 2022. These negatives indicate that the major uptrend phase of GOOGL has been damaged and could trigger a potential months-long correction. downward motion sequence.

One point of note will be its daily RSI oscillator which has almost reached its oversold region, suggesting that the recent decline in GOOGL’s price action from the March 29, 2022 high to the April 22, 2022 low is overloaded and that the chances of a minor corrective bounce increase. at the junction towards the 2,521/2,627 intermediate resistance area (also the former major uptrend line from March 23, 2020 now becomes a pullback resistance) before another downside move materializes.

If the key medium-term pivot resistance at 2,766 (also coincides with the 200-day moving average) is not breached on the upside, GOOGL could shape another potential downside move towards the next supports at 2,250/2,190 and 2013 (a group of Fibonacci retracement and extension levels).

However, a clearing with a daily close above 2,766 negates the bearish tone for a tightening towards 2,857 ahead of major resistance in the 3,012/3,028 range.