What we learned from Big Tech's earnings last week.

Key takeaways

  • Artificial intelligence featured prominently in earnings reports from MetaPlatforms, Google's parent company Alphabet, and Microsoft, but investors were hard to please despite the companies' earnings beat.
  • All three tech giants planned to increase AI-related capital spending, but Meta's shares fell as its AI spending raised near-term concerns.
  • Meta pointed to early success it's seen in integrating AI tech into its recommendation engine, but it seems investors want more clarity on how AI investments translate into ad revenue. can
  • Microsoft and Alphabet reported earnings beats supported by their cloud segments as the companies leverage AI to improve their existing cloud platforms for enterprise customers.
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Artificial intelligence (AI) was in focus as Meta Platforms ( META ), Google-parent Alphabet ( GOOGL ), and Microsoft ( MSFT ) reported earnings this week, but all posted better-than-expected results. However, investors were not easily impressed. Three tech giants.

Meta shares fell after the company emphasized rising costs to invest in AI. Meanwhile, shares of Alphabet rose and shares of Microsoft rose as the power of the cloud eased investor concerns about the rising costs of AI.

Big tech revenues showed that companies' enterprise customer businesses were key to AI monetization last quarter. Emphasis on enterprise offerings continued, with a focus on cloud segments.

Increase in AI spending

Meta's earnings defeat was overshadowed by the company's plans to increase spending on AI investments, sending the stock down more than 10% on Thursday after the earnings release late Wednesday. The concern for investors in the near term was how quickly the investment would yield returns, even as analysts said it could boost Meta's position in the long run.

However, investors did not feel the same way about Meta's counterparts.

Alphabet noted that spending has increased due to AI investments. Analysts at Raymond James wrote that AI-related developments in Google Cloud and YouTube “support the idea that Google is seeing an AI tailwind across the business.”

Amy Hood, Microsoft's chief financial officer, said the company expects to “increase capital spending on a sequential basis through cloud and AI infrastructure investments,” during the company's earnings call.

Hood said that while the company expects capital spending to be higher in fiscal 2025 than in 2024, “expenses over the next year are dependent on demand signals and adoption.” [Microsoft’s] Services.”

In response to their earnings reports, Alphabet shares rose 10 percent on Friday and Microsoft shares rose 1.8 percent.

Can AI translate into ad revenue?

While Meta has highlighted its early success in leveraging its AI tech, analysts say investors are looking for more clarity on how it might contribute to the company's existing structure.

“Growth may be limited in the near term,” Wedbush analysts wrote in a note, adding that investors were awaiting “further clarity on potential 2025 spending levels,” evidence that That the company can meet growth expectations despite tough comparisons, and sustained consumer and advertiser engagement with new AI offerings.

The company generates almost all of its revenue from advertising and is increasingly looking at ways to leverage AI to increase that revenue. Meta reported that 30% of content that users view on Facebook and 50% on Instagram is served by its AI recommendation engines that improve engagement and increase ad performance.

Alphabet also has its eyes on AI-powered advertising revenue growth. The company's Chief Business Officer (CBO) Philipp Schindler spoke during his earnings call about how creative AI is helping advertisers better target their audiences, and how tools like Gemini are needed for those ads. Can also help to create images and text.

Cloud is key for enterprise customers.

At Alphabet's recent Google Cloud Next conference, hundreds of the company's enterprise customers talked about using the cloud platform's genAI tools, including some notable business customers including Mercedes-Benz and Walmart ( WMT ).

Alphabet CEO Sundar Pichai said the company is “committed to making the necessary investments to keep [it] Top “Increased Capital Expenditures” in Technical Infrastructure Will Fuel Growth in Cloud, Support [the company] Push the boundaries of AI models, and enable innovation across all our services, especially in search.”

Pichai outlined the company's “clear paths to AI monetization through advertising and the cloud.” “The cloud business continues to grow as we bring the best of Google AI to enterprise customers,” he said.

While AI initiatives are top of mind for investors, Microsoft's cloud power drove its third-quarter earnings.

“Cloud and AI continue to fuel upside for Microsoft,” Bank of America analysts wrote, adding that “they believe Azure's strength is sufficient to drive revenue growth for the time being.”

“I know it's not as exciting to talk about all these AI projects,” said Microsoft's Hood, but Azure is “still really the foundation” for the company's enterprise customers.

Update—April 28, 2024: This article has been updated with stock price information.

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