Big tech’s divergent earnings
Alphabet (GOOGL) and Microsoft (MSFT) stocks are headed in opposite directions after reporting quarterly earnings on Tuesday night.
At the surface, Microsoft’s Intelligent Cloud surpassed Wall Street’s expectations while Alphabet’s cloud unit disappointed. But for investors, the focus remains on how artificial intelligence is driving growth within those businesses.
On the company’s earnings call Alphabet CEO Sundar Pichai said the company is seeing “a lot of interest in AI” for the cloud segment but revenue growth for the business area continued to slow down sequentially in Q3.
Meanwhile, at Microsoft, cloud revenue grew sequentially with management attributing 3 percentage points of growth directly to AI.
“Some of the improvements, we’re making in Azure and even in Microsoft 365 gross margins, even in the core of the commercial cloud, it speaks to the pace at which we are delivering AI revenue with the increasing cost expense and capital investment ahead with the demand we see,” Microsoft CFO Amy Hood told investors on an earnings call.
Both Microsoft and Google attributed increased capital expenditures to AI, but it was Microsoft’s ability to directly attribute revenue to AI that excited Wall Street analysts.
“The trend is now your friend,” wrote Evercore ISI’s Kirk Materne. “AI-Powered Azure acceleration highlights strong [fiscal first quarter] and the AI story only gets stronger in [the calendar year] 2024.”
Microsoft shares rose more than 4% on Wednesday morning while Alphabet declined more than 8%.
Jessica Roberts is a seasoned business writer who deciphers the intricacies of the corporate world. With a focus on finance and entrepreneurship, she provides readers with valuable insights into market trends, startup innovations, and economic developments.
