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July 18, 2019, 7:31 a.m. EDT

Earnings Watch: Why Microsoft is suddenly the most valuable company in Big Tech

As competitors face growth struggles and government spotlight, Microsoft looks like a calm oasis in the tech storm

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By Jeremy C. Owens, MarketWatch


MarketWatch photo illustration/iStockphoto, Bloomberg
Microsoft Chief Executive Satya Nadella is leading Apple and the rest of Big Tech with a trillion-dollar valuation.

Here is a blind earnings test:

Company A: $110 billion in annual revenue, expected to grow to $125 billion in the next year; $30 billion in annual profit, expected to grow to $35 billion.

Company B: $110 billion in annual revenue, expected to grow to $130 billion; $30 billion in annual profit, expected to grow to about $32 billion.

Seems pretty similar, right? One company is growing sales faster, the other is growing profit faster, but the valuations don’t seem like they should be too disparate.

Well, they are, differing by about a quarter-trillion dollars. Company A is Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.26%  , currently the only U.S. company worth more than $1 trillion heading into its earnings report Thursday afternoon. Company B is Google parent company Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL +0.27% /zigman2/quotes/205453964/composite GOOG +0.22%  , which is worth less than $800 million at going rates. (Alphabet’s revenue figure in that blind test does not include traffic-acquisition costs, because nothing about Google’s finances is easy).

It was just a year ago that the debate about trillion-dollar market caps focused on Apple Inc. /zigman2/quotes/202934861/composite AAPL -1.40%  and Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -0.12%  , with good reason: Apple was the first to top the mark, and Amazon has flirted with it multiple times and was only $20 billion away as of Wednesday’s close. But Microsoft has held that position by itself for more than a month now, thanks to one simple reason: It is still growing sales and profit healthily off a large base, and is expected to keep on that track for a while.

From December: It’s Apple vs. the cloud in race to be the world’s most valuable tech company

The other Big Tech names can’t make the same claim, at least not to the same degree. Amazon had a record $10 billion in profit last year, more than three times its previous mark while still a third of Microsoft’s net income, but expectations for more rely on Chief Executive Jeff Bezos continuing to refrain from spending prodigiously, which has not been part of his track record before last year. While Apple’s sales and profit put everyone else to shame, they are both expected to decline by a rather scary percentage this year.

Then there are Google and Facebook Inc. /zigman2/quotes/205064656/composite FB +0.14%  , the big growth names in tech for many years. Google showed a surprising drop in growth last quarter, slamming its stock and creating the current gap with Microsoft. Facebook continues to grow, but is spending like crazy on employees and government fines while stuck in a minefield of controversies, and every investor spends the evening scared of the next explosion.

Full Microsoft earnings preview: Trillion-dollar valuation is banking on continuing cloud growth

All four of those companies are currently facing antitrust investigations, while Microsoft ran that race 20 years ago. Meanwhile, its cloud product, Azure, is landing big deals and challenging Amazon Web Services like no other company, as legacy software and videogame businesses thrive anew. While its competitors deal with growth and regulatory issues, Microsoft appears to be the safe target for tech investors as it prepares to wrap up its fiscal year with Thursday’s report.

Also reporting Thursday

• UnitedHealth Group Inc.‘s /zigman2/quotes/210453738/composite UNH -0.95%  report Thursday morning will be an important early bellwether for the health sector, which has faced some tough questions this year.

Full preview: UnitedHealth stock has bounced back, but will positive streak continue?

• Two rookies will make their earnings debuts after booming initial public offerings. Online pet-food store Chewy Inc. /zigman2/quotes/212690528/composite CHWY -3.09%  and cybersecurity company CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD -3.71%  will make their earnings debuts Thursday afternoon after strong gains in early public trading.

• Morgan Stanley /zigman2/quotes/209104354/composite MS -0.40%  and Capitol One Financial Corp. /zigman2/quotes/204480509/composite COF +0.82%  will continue a parade of bank earnings, following results earlier this week from JP Morgan Chase & Co. /zigman2/quotes/205971034/composite JPM -0.47%  , Citibank /zigman2/quotes/207741460/composite C -0.63%  , Bank of America Corp. /zigman2/quotes/200894270/composite BAC -0.48%  and Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC -0.83%  .

• Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.38%  components expected to report: Microsoft and UnitedHealth

• S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.32%  components expected to report: 22, including Honeywell International Inc. /zigman2/quotes/205583690/composite HON -0.55%  and Philip Morris International Inc. /zigman2/quotes/201611010/composite PM +0.41%  .

Full earnings calendarLatest results

/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 151.36
-0.39 -0.26%
Volume: 16.74M
Dec. 9, 2019 4:15p
P/E Ratio
28.50
Dividend Yield
1.35%
Market Cap
$1157.67 billion
Rev. per Employee
$902,473
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,342.99
+3.60 +0.27%
Volume: 1.56M
Dec. 9, 2019 4:00p
P/E Ratio
28.82
Dividend Yield
N/A
Market Cap
$861.47 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,343.56
+2.94 +0.22%
Volume: 1.36M
Dec. 9, 2019 4:00p
P/E Ratio
28.83
Dividend Yield
N/A
Market Cap
$862.26 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 266.92
-3.79 -1.40%
Volume: 32.18M
Dec. 9, 2019 4:00p
P/E Ratio
22.52
Dividend Yield
1.15%
Market Cap
$1202.84 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,749.51
-2.09 -0.12%
Volume: 2.50M
Dec. 9, 2019 4:00p
P/E Ratio
77.46
Dividend Yield
N/A
Market Cap
$868.44 billion
Rev. per Employee
$359,671
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 201.34
+0.29 +0.14%
Volume: 12.01M
Dec. 9, 2019 4:00p
P/E Ratio
32.16
Dividend Yield
N/A
Market Cap
$573.49 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/210453738/composite
US : U.S.: NYSE
$ 277.54
-2.65 -0.95%
Volume: 2.70M
Dec. 9, 2019 6:30p
P/E Ratio
20.18
Dividend Yield
1.56%
Market Cap
$265.46 billion
Rev. per Employee
$754,157
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/zigman2/quotes/212690528/composite
US : U.S.: NYSE
$ 24.18
-0.77 -3.09%
Volume: 5.07M
Dec. 9, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$9.95 billion
Rev. per Employee
N/A
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/zigman2/quotes/212513426/composite
US : U.S.: Nasdaq
$ 49.00
-1.89 -3.71%
Volume: 13.81M
Dec. 9, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$10.45 billion
Rev. per Employee
N/A
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/zigman2/quotes/209104354/composite
US : U.S.: NYSE
$ 49.60
-0.20 -0.40%
Volume: 6.41M
Dec. 9, 2019 6:30p
P/E Ratio
10.58
Dividend Yield
2.82%
Market Cap
$80.61 billion
Rev. per Employee
$831,709
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/zigman2/quotes/204480509/composite
US : U.S.: NYSE
$ 102.21
+0.83 +0.82%
Volume: 2.08M
Dec. 9, 2019 6:30p
P/E Ratio
9.07
Dividend Yield
1.57%
Market Cap
$47.21 billion
Rev. per Employee
$683,151
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/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 134.41
-0.63 -0.47%
Volume: 8.58M
Dec. 9, 2019 6:30p
P/E Ratio
13.26
Dividend Yield
2.68%
Market Cap
$423.55 billion
Rev. per Employee
$497,647
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/zigman2/quotes/207741460/composite
US : U.S.: NYSE
$ 75.33
-0.48 -0.63%
Volume: 8.92M
Dec. 9, 2019 6:30p
P/E Ratio
10.00
Dividend Yield
2.71%
Market Cap
$165.51 billion
Rev. per Employee
$479,167
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/zigman2/quotes/200894270/composite
US : U.S.: NYSE
$ 33.51
-0.16 -0.48%
Volume: 33.00M
Dec. 9, 2019 6:30p
P/E Ratio
12.35
Dividend Yield
2.15%
Market Cap
$302.87 billion
Rev. per Employee
$543,289
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/zigman2/quotes/203790192/composite
US : U.S.: NYSE
$ 53.92
-0.45 -0.83%
Volume: 15.11M
Dec. 9, 2019 6:30p
P/E Ratio
11.64
Dividend Yield
3.78%
Market Cap
$229.95 billion
Rev. per Employee
$392,114
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,909.60
-105.46 -0.38%
Volume: 219.07M
Dec. 9, 2019 5:16p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,135.96
-9.95 -0.32%
Volume: 1.60B
Dec. 9, 2019 5:16p
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/zigman2/quotes/205583690/composite
US : U.S.: NYSE
$ 174.49
-0.97 -0.55%
Volume: 1.61M
Dec. 9, 2019 6:30p
P/E Ratio
20.37
Dividend Yield
2.06%
Market Cap
$125.37 billion
Rev. per Employee
$366,763
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/zigman2/quotes/201611010/composite
US : U.S.: NYSE
$ 83.59
+0.34 +0.41%
Volume: 3.33M
Dec. 9, 2019 6:30p
P/E Ratio
17.41
Dividend Yield
5.60%
Market Cap
$129.53 billion
Rev. per Employee
$382,519
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Jeremy Owens is MarketWatch’s technology editor and San Francisco bureau chief. You can follow him on Twitter @jowens510.

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