Artificial intelligence is expected to take center stage again as the country’s biggest tech companies begin reporting quarterly earnings on Tuesday.
Three months ago Microsoft (MSFT), Alphabet (GOOGL), Meta (META) and others battled for mentions of AI, sending stocks soaring on hopes of future earnings. This quarter, investors will be more eager to hear when those promises will materialize.
“Everyone can talk about the marketing spin, but I need to see the tangible impact on P&L,” Paul Meeks, portfolio manager at Independent Solutions Wealth Management, told Yahoo Finance Live. “Better give it to me. Tell me about it for the next few quarters at least, because I’m starting to believe it’s all smoke.”
Microsoft, Alphabet, and Meta are all expected to report earnings this week, giving updates on their plans for AI after news about AI technology sent their stocks soaring into the first half of 2023.
ChatGPT sparked conversations about AI when it was announced last November, and Microsoft and Alphabet quickly moved forward with plans for how the technology could reinvent search. And with companies reporting first-quarter earnings in the spring, the AI frenzy has fully taken hold.
Microsoft mentioned AI more than 50 times during its earnings call. Google called out this more than 100 times at its May event. Even Coca-Cola said it was “exploring ways to leverage AI.”
Nvidia’s AI callouts turned out to be the most monumental. The company said the technology could boost revenues in the next quarter by about 50% over initial expectations.
That sent tech stocks soaring, and AI became a frequent feature in research notes as strategists raised their full-year forecasts for the S&P 500.
“We believe investor enthusiasm for AI has room to grow in the coming years,” wrote Thomas Matthews, senior market economist at Capital Economics, in June.
A recent review of the AI hype shows that Matthews’ view is still spot on. Bloomberg’s report that Apple is working on its own version of ChatGPT sent the stock up about 1% last week. The day before, Microsoft shares rose about 4% after the company announced the price of its M365 Copilot AI product. Both stocks closed at all-time highs on the day the development collapsed.
Goldman Sachs managing director Kash Langan wrote that the focus will be on how much the company sees AI-powered growth amid Microsoft’s earnings preview, which includes raising its price target from $350 to $400 on the tech giant’s latest AI innovation.
“After a year of downscaling estimates, investors will be particularly sensitive if Microsoft leads a solid double-digit earnings clip in fiscal 2024,” Langan said on July 21. “We expect the level of attribution management by Gen-AI to be particularly focused as the market looks to validate the spending curve for this innovation cycle.”
But questions still swirl around whether technology stocks are overpriced amid the AI boom. An early tech earnings call last week showed that investors tend to sell tech stocks quickly if the earnings call is not well structured.
Both Tesla and Netflix fell nearly 10% the day after the earnings release, as investors focused on Tesla’s shrinking margins and Netflix’s lower-than-expected earnings.
“This may show just how high the hurdles behind current valuations really are,” Citigroup managing director Scott Cronert said in a note on Friday. “Next week we may need to see strength across all items and an increase in guidance to maintain index-level momentum.”
Josh Schafer is a reporter at Yahoo Finance.
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