Why did Alphabet’s search growth worry investors?

  • Alphabet’s search revenue grew 12%, below Wall Street’s expectation of 14.7% and the buy-side threshold of about 13%–14%; cloud revenue was 30.7 billion dollars, above Wall Street’s expectation but below the buy-side range of 31 billion–32.5 billion dollars. Overall earnings before interest and taxes were also about 2.8 billion dollars below expectations.
  • The report noted that search query growth reached a five-year high, but paid clicks grew only 8%; bears worry that the increase in AI Mode queries has yet to generate monetization comparable to traditional search. With advertising still accounting for about 65% of total company revenue, cloud is not yet enough to offset concerns about slowing search.
  • Bulls, meanwhile, believe multi-turn interactions can increase queries per user and that revenue could still rise if a model balancing user experience and monetization is found. The report also cautions that search faces higher year-over-year comparison bases in the next few quarters; simply extrapolating the current slowdown could bring first-quarter growth down to about 7%.

Why did Microsoft shares give up some gains as its cloud business accelerated?

  • Azure growth accelerated to 48%, above buy-side expectations, with guidance of 49%–50% for the next fiscal quarter. Despite delays in third-party capacity, management said greater efficiency from existing resources helped support growth.
  • Investors also focused on financing: Microsoft’s chief financial officer did not rule out equity financing, but said it ranked below other options. The report suggests that, given the company also indicated it might use debt, capital expenditure could exceed the 220 billion-dollar level watched by the buy side.
  • Growth and cash pressure coexist: free cash flow for the quarter was 18.6 billion dollars, above Wall Street’s expectation of about 8.5 billion dollars but down 27% year over year; capital expenditure including leases was about 49% of revenue. Azure guidance depends on continued efficiency gains, and at least about 5 billion dollars of capacity spending has been deferred to the second half.

Why has ServiceNow’s AI usage not yet accelerated overall growth?

  • Third-quarter subscription revenue was 3.988 billion dollars, up 21% year over year and slightly above Wall Street’s expectation of about 3.98 billion dollars; but fourth-quarter constant-currency growth guidance for current remaining performance obligations (cRPO) was 18.5%, below the third quarter’s 21% and Wall Street’s expectation of about 19.4%–19.8%.
  • Part of the gap reflects renewal timing and the scope of what is counted: early renewals pulled some business from the fourth quarter into the third, while some contracts, though excluded from cRPO, will still convert into revenue. After adjustment to about 19%–19.25% as described in the report, guidance remained below Wall Street expectations.
  • Net new annual contract value for AI grew 65% year over year, and the company raised its year-end AI annual contract value target to above 1.7 billion dollars. But most usage remains within customers’ initial purchase allowances, and the group of customers exceeding those allowances is small, so usage is growing faster than incremental revenue.
  • The company provides deployment services for some large AI deals, shifting some contract value from subscriptions to professional services, and expects this to reduce fiscal 2027 subscription growth by about 1 percentage point. Meanwhile, third-quarter subscription gross margin fell 3 percentage points year over year to 80.2%; management used about 18% as the starting point for fiscal 2027 subscription growth, below the previous sell-side expectation of about 18.7%–18.9%.

Can services take over after Fortinet’s hardware growth slows?

  • Third-quarter product revenue was 765 million dollars, up 36.8% year over year and above Wall Street’s expectation of 726 million dollars, but below the buy-side growth threshold of about 50% and the second quarter’s 51.9%. Management attributed part of the slowdown to inventory buffers returning to normal and longer lead times for some components.
  • Service revenue grew 12.7% year over year, below the second quarter’s 13.7% and Wall Street expectations; the company cut its full-year service revenue guidance by 40 million dollars. Some large customers bought hardware early but scheduled service starts for the deployment phase; other factors included larger service discounts and lower service attach rates for some products.
  • Service billings and deferred revenue offer signs of improvement: current-period service billings growth rose from 16% in the second quarter to 18% in the third, while short-term deferred revenue grew 14.5%. But product gross margin still fell 5.4 percentage points sequentially to 64.5%, as higher-cost components began affecting results after earlier low-cost inventory was exhausted.