A day of frenetic earnings reporting provided a glimpse into how some of the world’s biggest technology companies are working in the artificial intelligence space. As a result, Alphabet Inc.’s Google is seeing clear results from its AI investments, while Metaplatforms Inc. is lagging behind.
The companies’ results were part of a deluge of financial information Wednesday, with Alphabet Inc., Meta Inc., Amazon.com Inc. and Microsoft Corp. all releasing their numbers within two minutes. These four companies are the biggest spenders on AI data farms and are central to building an infrastructure expected to cost trillions of dollars.
A key question among investors and analysts is whether the massive spending is yielding tangible results. In this regard, Google was able to point out that its cloud computing division has seen strong growth, with sales of $20 billion in the last quarter. This exceeded expectations of $18.4 billion. Google said the division saw “significantly accelerated growth” driven by demand for AI software and infrastructure.
“We see great momentum in our AI model,” Alphabet CEO Sundar Pichai said on a conference call with analysts. “Through our products and platform, we put AI in the hands of billions of people every day.”
The backlog, a measure of contract work not yet recorded as revenue, nearly doubled from the previous quarter to more than $460 billion. The period was also the strongest quarter ever for Google’s consumer AI services, including the Gemini app, Pichai said.
Alphabet shares rose 6.6% in late trading following the report, outperforming other AI giants. Futures for the Nasdaq 100 index, which has a large proportion of tech stocks, rose 0.9%.
Mehta had a hard time getting his point across to investors. The company’s stock price fell more than 6% after the company increased its full-year capital spending to $145 billion. This increase was due in part to higher component prices.
Meta is not alone in increasing spending. Google and others have expanded their goals. But the meta doesn’t have much to show for this huge outlay. Unlike Google, the company doesn’t sell cloud computing services, and the adoption of consumer AI apps has been slow.
“Meta’s standalone apps don’t have as much engagement” compared to its largest AI peers, Bloomberg Intelligence analyst Mandeep Singh said in a note.
Meta CEO Mark Zuckerberg expressed confidence in the company’s decision to increase spending, but his answers to analysts’ questions were vague.
He said on the conference call that Meta doesn’t have a “very precise plan” for how to grow each AI product.
“I think we have a sense of how things should be,” Zuckerberg said, although he acknowledged that his answer may not be “satisfactory.”
“The potential rewards from AI leadership appear so large that companies continue to make those bets, forcing investors and customers alike to assess how their bottom lines will be affected,” Forrester Research analyst Lee Suster said in a note.
Amazon saw its cloud division’s revenue increase 28% year-over-year, the highest growth rate since the second quarter of 2022. This business serves as a bellwether for the company’s AI advancements.
The company has also received a boost from investments in two AI startups, OpenAI and Anthropic PBC. Amazon stock rose on Wednesday after Bloomberg News reported that Anthropic is considering a new funding round that would value the company at more than $900 billion.
For its part, Microsoft said cloud computing revenue will accelerate along with spending. The company expects its Azure cloud division’s revenue to grow about 40% this quarter, with “moderate acceleration” expected in the second half of the calendar year.
Concerns remain about the small percentage of Microsoft Office users paying for the company’s Copilot AI tool. According to the company, the number of paid Copilot seats has reached 20 million, an increase of 5 million from the previous quarter.
Investors reacted poorly to the news, and the stock price fell slightly in after-hours trading. Citi analyst Tyler Radke called the results in a note “a quarter of solid execution vs. a step change in momentum.”
Bass writes for Bloomberg.
