2 Tech Giants Could Make Wednesday a Great Day for the Stock Market

Stocks gave up ground on Tuesday, as investors were somewhat troubled by signs of sluggishness on the macroeconomic front. Some weakness in the industrial economy was particularly notable, driving fears of a recession. The Nasdaq Composite (^IXIC -0.64%) suffered the steepest losses, but the Dow Jones Industrial Average (^DJI -0.98%) and S&P 500 (^GSPC -0.46%) also lost more than 1% on the day.

Data source: Yahoo! Finance.

After the closing bell, though, the news was better. In particular, investors had been watching closely to see what tech giants Microsoft (MSFT -2.45%) and Alphabet (GOOGL -1.97%) (GOOG -1.96%) would say about their respective financial results.

Both companies gave shareholders something to celebrate, and that could help push the entire market higher on Wednesday. Read on to learn more about why Microsoft and Alphabet were so upbeat.

Microsoft stays strong

Shares of Microsoft jumped more than 5% in after-hours trading on Tuesday afternoon. The tech pioneer reported fiscal third-quarter results for the period ended on March 31 that reassured investors that tough economic conditions aren't crushing its business.

Microsoft's numbers were solid. Revenue climbed 7% year over year to $52.9 billion, overcoming three percentage points of currency headwinds. Net income climbed an even steeper 9% to $18.3 billion. That worked out to earnings of $2.45 per share, which grew at a 10% rate from year-ago levels.

As we've seen in past quarters, though, the performance of Microsoft's underlying business units wasn't consistent. The intelligent cloud division posted the sharpest growth, with sales rising 16% on a 27% rise in sales from Azure and other cloud services. The productivity and business processes segment also enjoyed double-digit percentage sales growth, led by commercial purchases of the Office suite of productivity software. Yet in the personal computing segment, sales were down 9%, with a 30% plunge in revenue from devices that offset gains in various types of PC-related cloud revenue.

Investors have been on the lookout for signs that weaker activity levels from Microsoft's business clients could signal a deeper recession. That doesn't appear to be happening, and shareholders in the software company were pleased to see more positive signs that argue against the recession narrative.

Alphabet bounces back

Meanwhile, shares of Alphabet were also higher in after-hours trading, albeit by a smaller margin. The search engine specialist's stock climbed 2%, making back its losses from the regular session.

Alphabet's financial performance in the first quarter of 2023 was mixed. Revenue managed to inch ahead by 3% year over year to $69.8 billion. However, the company took a hit on the bottom line, as net income dropped by more than 8% to $15.1 billion. Even after accounting for a decline in shares outstanding, earnings fell to $1.17 per share.

Performance from Alphabet's underlying businesses was also mixed. The Google Search division managed to boost its revenue by about 2%. However, weakness in the YouTube division sent its revenue down by nearly 3% from year-ago levels, and declines from the Google Network were even steeper. The company's Google Cloud unit posted healthy 28% growth, but the $7.45 billion in revenue that Alphabet gets from that side of the business still makes up only 11% of its total sales.

Investors were pleased to see Alphabet aim to keep cutting costs, and news of a $70 billion stock buyback authorization also helped boost the shares. Nevertheless, many see Alphabet facing threats from Microsoft's AI-powered search feature, and shareholders will have to come to grips with heightened competition in the years to come.