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

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. MSFT, -0.59% , 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. GOOGL, -0.58%GOOG, -0.63% , 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. AAPL, -0.56% and Amazon.com Inc. AMZN, -0.89% , 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. FB, -1.00% , 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.

• UnitedHealth Group Inc.‘s UNH, +0.75% 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.CHWY, -3.51% and cybersecurity company CrowdStrike Holdings Inc.CRWD, +2.10% will make their earnings debuts Thursday afternoon after strong gains in early public trading.

• Morgan Stanley MS, -1.49% and Capitol One Financial Corp. COF, -1.93% will continue a parade of bank earnings, following results earlier this week from JP Morgan Chase & Co.JPM, -0.98% , CitibankC, -0.70% , Bank of America Corp.BAC, +0.69% and Wells Fargo & Co.WFC, -0.20% .

• Dow Jones Industrial Average DJIA, -0.42% components expected to report: Microsoft and UnitedHealth

• S&P 500 index SPX, -0.65% components expected to report: 22, including Honeywell International Inc. HON, -3.52% and Philip Morris International Inc. PM, -0.65% .

Full earnings calendar • Latest results

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