Important points
- Artificial intelligence gained attention in earnings reports from Metaplatform, Google's parent company Alphabet, and Microsoft, but struggled to satisfy investors even as the companies beat profits.
- All three tech giants had plans to increase AI-related capital spending, but Meta shares fell as AI spending raised short-term concerns.
- Meta noted that it has seen early success integrating AI technology into its recommendation engine, but investors want more clarity on how investments in AI will translate into advertising revenue. It seems so.
- Microsoft and Alphabet leveraged AI to improve their existing cloud platforms for enterprise customers and reported higher profits supported by their cloud segment.
Artificial intelligence (AI) has been in the spotlight this week as Metaplatforms (META), Google's parent company Alphabet (GOOGL), and Microsoft (MSFT) reported earnings, even though each company reported better-than-expected results. However, investors were not easily impressed. Three major technology companies.
Meta shares plunged after the company emphasized increased investment in AI. Meanwhile, Alphabet shares soared and Microsoft shares rose as cloud strengths appeared to ease investor concerns about rising AI spending.
Earnings from big tech companies showed that their enterprise customer businesses were key to AI monetization last quarter. The focus on enterprise products continues to be focused on the cloud segment.
Spending on AI increases
Meta's earnings forecast was overshadowed by the company's plans to increase spending on AI investments, and shares fell more than 10% on Thursday after the company announced late Wednesday results. Analysts said it could strengthen Meta's position in the long term, but in the short term investors' concern was probably how quickly the investment would generate returns. Ta.
But investors don't seem to feel that way about Meta's peers.
Alphabet noted that spending is increasing due to AI investments. AI-related growth at Google Cloud and YouTube “supports the idea that Google is seeing AI tailwinds across its business,” Raymond James analysts wrote.
Amy Hood, Microsoft's head of financial offers, said on an earnings call that the company expects “significant increases in capital expenditures driven by investments in cloud and AI infrastructure.”
Hood said the company expects capital spending in fiscal 2025 to be higher than in 2024, but that “these spending over the next year will be subject to demand signals and capital spending adoption.” Ta. [Microsoft’s] service. ”
Alphabet shares jumped 10% on Friday after the earnings report, while Microsoft rose 1.8%.
Will AI spending lead to advertising revenue?
While Meta has highlighted early successes in leveraging AI technology, analysts say investors are looking for more clarity on how Meta can contribute to the company's existing structure. Says.
“Near-term upside may be limited,” Wedbush analysts said in a note, adding that investors are awaiting “further clarity on potential spending levels in 2025.” Ta. He added that this is proof that the company can meet growth expectations even under tougher conditions than comparable companies, and that it can expect sustainable user and user growth. Advertiser engagement with new AI services.
The company derives almost all of its revenue from advertising and is increasingly looking at ways to leverage AI to drive that revenue. Meta reports that 30% of the content users see on Facebook and 50% on Instagram is served by AI recommendation engines that improve engagement and increase advertising efficiency.
Alphabet is also looking to grow advertising revenue using AI. Philipp Schindler, the company's chief business officer, spoke on the earnings call about how generative AI can help advertisers better target their audiences, and how tools like Gemini can improve the image and text needed for ads. He also talked about the possibility that it could be useful for creating.
Cloud is key for enterprise customers
At Alphabet's recent Google Cloud Next conference, hundreds of the company's enterprise customers spoke about using the cloud platform's genAI tools, and prominent business users such as Mercedes-Benz and Walmart (WMT) also attended.
Alphabet CEO Sundar Pichai said the company is “committed to making the investments necessary to sustain.” [it] Cloud growth will be driven by “increased capital expenditures” at the cutting edge of technology infrastructure; [the company] Pushing the frontiers of AI models and enabling innovation across our services, especially in search. ”
Pichai outlined the company's “clear path to AI monetization through advertising and the cloud.” “Our cloud business continues to grow as we bring the best of Google AI to our enterprise customers,” he said.
While AI initiatives are top of mind for investors, Microsoft's cloud strengths helped boost third-quarter profits.
“Cloud and AI continue to be an upside for Microsoft,” Bank of America analysts said, adding, “We currently believe Azure's strength is sufficient to further drive total revenue growth.” said.
Microsoft's Hood said that while “we know it's not exciting enough to talk about every AI project,” Azure “remains really foundational” for the company's enterprise customers. I did.
Updated – April 28, 2024: This article has been updated with stock price information.
