Shares of Microsoft (MSFT) and Alphabet (GOOG, GOOGL) are shaky despite beating earnings estimates. Wall Street appears to be disappointed with the companies' AI-driven advertising revenues.

Yahoo Finance’s Rachelle Akuffo and Akiko Fujita look at analyst notes and discuss the implications for both tech giants.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim

Video Transcript

AKIKO FUJITA: Tech earnings-- the declines in shares of Microsoft and Alphabet-- this coming despite the tech companies delivering a beat on earnings. Investors, though, not necessarily impressed. And, Rachelle, don't want to make too much of just one day's move here. You could argue there's some profit taking in there given the incredible runup that we have seen in both of these stocks.

Maybe it's a bit of a "sell the news" situation. But we've been looking through some analyst notes this morning that seem to suggest sort of where the sentiment is despite these beats that we saw from the company. Specifically on Alphabet, this headline, I think, says it all from Brent Thill over at Jefferies, saying the strong finish is there. But investors wanted more.

And there's a lot of focus here on ad revenue. Yes, we saw an acceleration there-- not exactly where investors wanted it to be, though. It was up about 13% year-on-year. YouTube ads up 11% year-on-year, Rachelle.

RACHELLE AKUFFO: It's true. And other commentaries-- we keep seeing that word "expectations," which makes you wonder how much of this, as we were talking about before, already built in to the share price? And we knew that at some point, the rubber was going to meet the road. They were going to want to see those expectations make sense.

Looking at Stifel analyst Mark Kelly, he said these were healthy advertising results, but not enough, with the stock reaching all time highs into the print-- expectations swiftly ticked higher. So it's almost like being a victim of your own success here. And also, commentary from Evercore ISI in regards to Google, saying this is fundamentally a stronger quarter as gross revenue search YouTube, and cloud, and Google, other revenues all accelerated.

But the price actions following the print reflecting that higher expectations that weren't exceeded. And these were really expectations that the Street put on itself here. I mean, some of this was sort of this AI fervor, as you mentioned, some of the profit-taking as well. But at some point, they had to realize that it wasn't just going to keep riding high. People were actually going to want to see some of these results showing up.

AKIKO FUJITA: Yeah. You could argue there's a bit of a head scratching that's coming through here the day after. A stock like Microsoft, some would say was priced to perfection. You'd have those like Dan Ives who are saying this is a result that the company should frame, because it was so strong.

But this headline to me from Guggenheim really says it all-- "good enough." That's the headline coming through from analysts over at Guggenheim, saying topline results on key units all beat Wall Street expectations across the board. Yes, Azure came in better than expected, but they saw growth moderating overall. And here's specifically what they said-- we wonder how far into the future investors will have to look to get past it.

Are we on the cusp of a return to hyper demand? Or is this simply a new normal? Specifically on Microsoft, Rachelle, you could argue investors are really looking for some additional color on revenue coming through from AI and their product Copilot. Now, having said that, the company didn't report any material gain there on the revenue. It only launched, as in Copilot, only launched one month into the quarter.

So that is still to be determined. But you heard Satya Nadella say specifically, we've moved from talking about AI to applying AI at scale. Based on the share move, you could argue investors wanted to hear more about how they're applying and what that means for the revenue picture.

RACHELLE AKUFFO: That's true. But as we continue to say, and as you mentioned in that context there, still very early days. So a lot of that overexcitement built in, and some of the share price taking a knock because of it.