HomeIndustriesMicrosoft and Alphabet profit from AI-powered gains from cloud divisions

Microsoft and Alphabet profit from AI-powered gains from cloud divisions

Alphabet, the owner of Microsoft and Google, has allayed investor skepticism in regards to the huge sums it’s spending on developing artificial intelligence after being boosted by strong corporate demand for its cloud computing services.

The combined market value of the 2 U.S. tech giants rose by greater than $250 billion on Friday, a day after each reported double-digit revenue growth of their first-quarter results, significantly beating analysts' expectations. Shares of Amazon and Nvidia, two other beneficiaries of AI spending, also rose by around 3 and 6 percent, respectively.

This week's earnings reports from Microsoft and Alphabet have eased market concerns in regards to the huge jumps in spending on infrastructure needed to run AI chatbots like OpenAI's ChatGPT and Google's Gemini, in addition to several other firms experimenting with latest AI models , is required.

Meanwhile, promoting revenue at Google also increased, suggesting that AI-powered chatbots are yet to be adopted by the world's dominant search engine. Jim Tierney, head of U.S. growth at AllianceBernstein, said Alphabet's first-quarter results, reported Thursday, “didn't put the questions (about AI) to rest.” But there was a lot good elsewhere, that's buying them more time .”

Analysts at Baird estimate that capital spending by Alphabet, Amazon, Microsoft and Meta might be around $188 billion this yr, nearly 40 percent greater than in 2023. Electric automobile maker Tesla said it spent $1 billion in the primary quarter Investing dollars in AI would speed up spending on chips and automatic driving.

The bullish outlook from members of the Magnificent Seven, the leading U.S. tech firms, could reignite the AI-powered rally that drove many of the U.S. stock market's gains in 2023. This had stalled earlier within the yr as pessimism spread about runaway technology spending and general concerns about rates of interest and the conflict within the Middle East.

Alphabet shares rose 10 percent on Friday, an increase helped by the corporate paying the primary dividend in its history and boosting its market capitalization above the $2 trillion threshold. Microsoft, the world's most useful company and OpenAI's biggest supporter, rose nearly 2 percent, climbing back above $3 trillion.

The gains contrast with Meta's 11 percent decline on Thursday after Facebook's parent company said it might invest “aggressively” in latest AI products like chatbots, despite generating limited returns from them up to now. Susan Li, Meta's chief financial officer, said capital spending would rise to $40 billion this yr and rise even further in 2025, a forecast that dwarfed a 91 percent rise in net profit in the primary quarter.

But those constructing cloud infrastructure embraced even bolder AI spending plans. Ruth Porat, Google's chief financial officer, said capital spending would rise 50 percent or more this yr to a minimum of $48 billion.

“After greater than a yr of seemingly lagging behind (in AI), we imagine Google is beginning to go on the offensive,” analysts at JPMorgan said.

Microsoft CFO Amy Hood announced a 79 percent increase in quarterly capital spending to $14 billion year-over-year, adding that much more data center funding is required because “AI demand is barely higher than our available capability.” .

The OpenAI website ChatGPT About page
There has been a surge in demand for AI services similar to ChatGPT, a chatbot developed by OpenAI © Bloomberg

Demand for AI services from startups like OpenAI and Anthropic, in addition to large enterprise customers, is growing so quickly that many vital components, including chips and power supplies, have grow to be scarce.

“If you don’t use AI actively and aggressively, you’re doing something incorrect,” Nvidia CEO Jensen Huang said on Wednesday at an event hosted by the payments company Stripe.

“Your company won’t go bankrupt due to AI,” he said. “The business will exit of business because one other company used AI. There’s no doubt about that.”

The first-quarter performance eases pressure on Alphabet CEO Sundar Pichai, who has come under fire for allowing Google to lose the lead in consumer and enterprise AI products to Microsoft following its $13 billion partnership with OpenAI .

Google was forced to stop imaging in its own flagship AI system, Gemini, after it sparked outrage over its inaccurate historical representation of various ethnicities and genders.

“Google has faced near-constant criticism for the inevitable AI-driven disruption of search, a series of PR missteps that raised questions on whether Google was too far behind on AI or too “woke” to drag it off,” said Bernstein analyst Mark Shmulik. “Google needed to be perfect or it might be penalized again for micro-errors.”

Sales in Google's core search promoting business also rose by 13 percent. Longer-term, nevertheless, Pichai still faces the query of whether chatbots that provide easy answers will impact usage of its ubiquitous search engine.

He told analysts that early experiments with generative AI to offer more comprehensive answers to look queries “improve user satisfaction.” He added: “I’m confident and assured that we will manage the transition to monetization well here.”

Other firms are joining the AI ​​buying spree. Both Apple and Amazon, which report their first-quarter results next week, have said they may also invest heavily in computing power and staff to enhance their products.

However, Microsoft's Azure offering is “the one software company benefiting from AI at this point within the cycle,” said Brad Sills, research analyst at Bank of America. “Microsoft stays ahead on this massive latest cycle.”


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