Apple, Microsoft Smash Earnings Expectations. What to Watch Now

Big Tech is having a big week.

Apple and Microsoft both handily beat expectations with their earnings reports, with all of Apple's major product categories growing by more than 12% and Microsoft's revenue climbing 21% year over year.

Three market analysts said Wednesday that the strong reports set the foundation for further upside for both stocks.

Here's what they told CNBC:

Alex Zukin, Microsoft analyst at Wolfe Research, said Apple's and Microsoft's success is linked:

"I think that Apple is the vehicle on which Microsoft ultimately sees its success. I was joking with the management team yesterday that I love running Microsoft products on Apple devices. And you've seen what they just announced with Windows and Windows 365, being able to launch Windows remotely from any device. So, I think that ... Microsoft's power with Azure, to be the fabric of every customer product that they deliver, and Microsoft Office, that's the fabric of where everybody spends most of their time in a given day, that's very powerful. And if you think about what's going to drive success for software in the next 10 years, it's going to be engagement and data. Microsoft has the most engagement and it has a lot of data and those two things form a flywheel. More of one leads to more of the other."

Jim Suva, Citi's senior tech analyst, said Apple posted what was "almost the perfect quarter" despite skepticism around its ability to keep delivering:

"The way you get around it is simply continuing to put out great products, great experiences and then the performance of the stellar operations that Apple is very much known for. It's more than just an iPhone story now. iPhones now represent less than 50% of the company's total sales. … It is now a platform story where the company has many things all clicking on this platform and they've worked to have a great customer experience."

Amit Daryanani, research analyst at Evercore ISI, said even Apple's potential pitfalls shouldn't derail its story:

"Thirty-six percent growth was impressive. I think the debate on Apple always ends up being the durability of this growth, the sustainability of this, if you may. And the big dynamic, the big discussion on the call was really this $4 [billion to] $5 billion estimate of supply chain constraints on iPhones in September. What does that really mean? Now, our stance would be, listen, what this does is enable Apple to exit September with a really good backlog because I think fundamentally, you don't ever destroy Apple iPhone demand, you just defer it out. If you can't get the iPhone, you just wait for it. You're not going to go buy an Android phone in that time frame. Which means I think the potential for them to grow in December of fiscal '22 is higher today than it was 12 hours ago, 24 hours ago, which I think is a big, big positive for the stock."


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