Most big technology stocks tumbled after their third quarter earnings reports, adding to the losses they already had suffered this year.
But that helps make at least three of them attractive as long-term buying opportunities, according to Morningstar: Alphabet (GOOGL), Amazon.com (AMZN), and Microsoft (MSFT).
Morningstar’s Take on Alphabet
Morningstar analyst Ali Mogharabi assigns the company a wide moat and puts fair value for the stock at $160. It recently traded at $90.
“Alphabet reported disappointing third-quarter results, as revenue growth decelerated further, driven by the stronger dollar and economic uncertainty,” he wrote in a commentary. That uncertainty is “increasing hesitancy in ad spending.”
But, “assuming less uncertainty in the macroeconomic environment, plus the monetization of YouTube Shorts, we expect advertising revenue growth to return to double-digit levels in 2023,” Mogharabi said. “Unlike advertising, the cloud business maintained impressive growth.”
Meanwhile, “Alphabet dominates the online search market, with 80%-plus global share for Google, via which it generates strong revenue growth and cash flow,” he said.
“We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in search.”
Morningstar’s Take on Amazon
Morningstar analyst Dan Romanoff gives the company a wide moat and puts fair value for the stock at $150. It recently traded at $91.
“Amazon reported disappointing third-quarter results and provided investors with soft fourth-quarter guidance, with the performance of AWS being our greatest near-term concern,” he wrote in a commentary. AWS stands for Amazon Web Services, the company’s cloud-computing division.
“This quarter stings, as this was supposed to be the quarter where Amazon had finally lapped pandemic-fueled issues,” Romanoff said.
“We continue to believe in long-term growth driven by e-commerce proliferation, AWS, and advertising,” he said.
“But the near term is clouded by a variety of macroeconomic issues, including currency headwinds, high inflation, soaring energy costs, and deceleration in AWS.”
Further, we can look through these issues, but believe they are likely to persist throughout 2023,” Romanoff said. Still, “we are not ready to throw in the towel on Amazon” long-term.
Morningstar’s Take on Microsoft
Romanoff assigns the company a wide moat and puts fair value for the stock at $320. It recently traded at $230.
“Microsoft reported solid fiscal first-quarter 2023 results, including revenue and earnings ahead of the guidance midpoints,” he wrote in a commentary.
“The outlook, however, was worse than our below-consensus model was contemplating.” The problem is macro pressures, Romanoff said.
“Bulls can point to good growth in commercial bookings and commercial remaining performance obligation to find near-term comfort, while bears will no doubt highlight slowing Azure [Microsoft’s cloud-computing platform] and weaker-than-expected guidance.”
Remaining performance is the sum of deferred revenue and backlog.
As for Romanoff’s view, “we continue to find encouragement in Azure, Office E5 migration, and traction with the Power platform for long-term value creation,” he said. “But we think near-term pressures will not be exhausted within the next quarter.”
The author owns shares of Alphabet, Amazon, and Microsoft.
