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The Impact of Artificial Intelligence on Alphabet and Microsoft Stocks

Summary

Alphabet (GOOGL) and Microsoft (MSFT) have taken diverging paths following the release of their quarterly earnings reports on Tuesday evening. While Microsoft exceeded Wall Street’s expectations with its performance in the Intelligent Cloud segment, Alphabet’s cloud unit surprised investors. However, […]

The Impact of Artificial Intelligence on Alphabet and Microsoft Stocks

Alphabet (GOOGL) and Microsoft (MSFT) have taken diverging paths following the release of their quarterly earnings reports on Tuesday evening. While Microsoft exceeded Wall Street’s expectations with its performance in the Intelligent Cloud segment, Alphabet’s cloud unit surprised investors. However, both companies recognize the driving force behind their growth in these business areas: artificial intelligence.

During the earnings call, Alphabet CEO Sundar Pichai stated that the company has seen “significant interest in AI” within the cloud segment. However, revenue growth in that business area has consistently slowed down in the third quarter. On the other hand, Microsoft experienced a rise in cloud revenue, attributing a 3% increase directly to artificial intelligence.

Both Microsoft and Google acknowledge the increased capital expenditure on AI. However, Microsoft’s ability to directly attribute revenue to AI has impressed Wall Street analysts. As Kirk Materne from Evercore ISI wrote, “The trend is now your friend. Powering Azure with AI highlights a strong [first quarter], and the AI story continues to gain momentum in [calendar 2024].”

This divergence is reflected in the stock market, with Microsoft’s shares rising by over 4% on Wednesday morning, while Alphabet witnessed a decline of over 8%. This market reaction further exemplifies how the narrative surrounding artificial intelligence has evolved throughout 2023. At the beginning of the year, announcements about AI integrations gained popularity, particularly with Microsoft’s $10 billion investment in OpenAI. Later, Nvidia’s statements about overwhelming interest in AI-powered chips convinced investors that this technology could be a game-changer for tech companies.

However, as AI sparked a significant increase in stock value during June, macro strategists have revised their overall outlook on the S&P 500. Investors are increasingly paying attention to companies that are truly positioned as leaders in the field of AI. For executives, managing expectations related to a technology that can revolutionize every aspect of our lives has become an art in itself.

If investors exit the call with excessive enthusiasm about AI, they could be disappointed in the next quarter when expectations are tempered, and AI projections are pushed further into the future (as seen with AMD’s 7% stock decline following quarterly earnings). Nevertheless, simply stating investment in AI without providing explanations on how it contributes to revenue won’t suffice.

Frequently Asked Questions

1. What impact has AI had on Alphabet and Microsoft stocks?

AI has led to diverging stock performances for Alphabet and Microsoft. While Microsoft’s stock saw a rise, Alphabet’s experienced a decline following their quarterly earnings reports.

2. How has Microsoft attributed its revenue growth to AI?

Microsoft directly attributes a 3% increase in its cloud revenue to artificial intelligence.

3. How have investors reacted to the impact of AI on these companies?

Investors have shown increased interest in companies positioned as leaders in AI, as demonstrated by the rise in Microsoft’s stock and the decline in Alphabet’s stock.

4. What challenges does the industry face in implementing AI infrastructure?

The introduction of AI infrastructure may prove to be a limiting factor in achieving the full potential of AI and its impact on revenue. However, analysts expect a better AI impact by 2024.

5. How do executives manage expectations related to AI?

Executives must skillfully navigate the expectations surrounding a technology that has the potential to transform various aspects of society.

Source: Yahoo Finance