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Investor buzz about big tech’s financial gains from generative artificial intelligence waned Tuesday as Microsoft and Google warned of more big spending this year in the arms race to develop cutting-edge AI products.
Strong quarterly results from rival tech companies on Tuesday failed to convince investors that growth will invest heavily this year with plans to deliver generative AI in data centers and servers.
Shares in Microsoft fell 1 percent, despite strong cloud computing sales from consumers eager to use its suite of software services that integrate with technology from ChatGPT maker OpenAI.
Meanwhile, Alphabet shares fell nearly 6 percent as its ad revenue fell short of expectations, even as it tries to integrate its Gemini generative AI into its advertising, search and cloud businesses. .
Both groups warned that capital expenditures will be higher in 2024 as they make more significant investments in the technological infrastructure underpinning generative AI, doubling down on multibillion-dollar bets.
Microsoft was thrust into the center of the generative AI race last year thanks to its deal with OpenAI, for which it has pledged up to $13 billion. Investor hype has driven its share price up more than 60 per cent in the past 12 months, pushing its market value to $3tn and earlier this month overtaking Apple as the world’s biggest company. left behind.
Investors have looked closely at its cloud division, the biggest driver of sales that includes its Azure platform, for evidence that its mega-bet on OpenAI is starting to translate into financial gains. will be done
In the final quarter of 2023, Microsoft’s cloud revenue rose 20% to $25.9bn, ahead of analysts’ expectations of $25.3bn, with Azure sales up 30%.
Demand for Microsoft’s AI services boosted Azure revenue by 6 percentage points during the quarter, an acceleration from sales growth of about 3 percentage points in the previous three months.
Google Cloud will also be a key growth driver for Alphabet amid growing demand for generative AI, and investors are anticipating the launch of its generative AI Gemini Ultra later this year, its chatbot, Bard has the most advanced upgrade.
Forrester analyst Lee Sostar said Alphabet and Microsoft customers “‘buy AI now, find out if it works later'”. The companies had a similar “AI-Everywhere strategy” that would pressure rival Amazon to “expand AI services to defend its cloud market share leadership.”
Microsoft chief executive Satya Nadella said Microsoft now has 53,000 Azure AI customers, more than a third of whom were new to the service in the past 12 months, and is seeing “billion-dollar-plus Azure commitments” growing. are But it expects revenue growth in its cloud division to slow to 18-19 percent in the current quarter, while Azure growth will remain flat.
Brett Iverson, vice president of investor relations, said Microsoft is expanding its AI infrastructure capacity by investing in areas such as data centers and servers, but that it has yet to meet growing demand for cloud services and other areas ” “Cost control” has not reduced margins. Areas
Semiconductor company AMD raised its AI chip sales forecast for 2024 to $1.5 billion in an earnings report on Tuesday, saying customers including Microsoft are deploying its new MI300 chips faster than expected. Go ahead, which competes with Nvidia.
Amy Hood, Microsoft’s chief financial officer, said the company expects to “materially grow” through investments in cloud and AI infrastructure. Meanwhile, the company was “pivoting” to an “AI-first” workforce instead of hiring a large number of new people to focus on technology.
Analysts are watching closely to see how many customers are using Microsoft 365 Copilot, a generative AI assistant integrated into the company’s suite of productivity apps. The company has made the tool — priced at $30 per user for businesses — available to individuals and small and medium-sized businesses.
While the company did not disclose sales or user figures for Copilot, Nadella said its rapid adoption is reminiscent of the early days of the PC, after an initial period of use by early adopters. Standard Issue” became.
Microsoft’s total revenue rose 18 percent to $62 billion in the three months to the end of December, ahead of forecasts of $61.1 billion. Earnings per share of $2.93 were well ahead of analysts’ forecasts for $2.77.
Additional reporting by Michael Acton