After pouring billions of dollars into the infrastructure needed to support AI applications, Alphabet and Microsoft both reported stronger-than-expected quarterly revenue growth.
Reuters
Alphabet and Microsoft ignited a rally in tech stocks on Friday with earnings showing big AI investments driving growth, until high bets pay off after Metaplatforms' weak outlook Allayed doubts that it would take time.
Alphabet rose 10% and benefited investors with its first dividend and $70 billion in share buybacks, giving it a profit of about $180 billion and a market capitalization of more than $2 trillion.
Click here to follow our WhatsApp channel
The world's fourth most valuable company reached this milestone on an intraday basis more than three years ago, according to LSEG Datastream, but had never closed above that level.
Microsoft rose nearly 3%, and its market value was expected to increase by more than $80 billion.
After spending billions of dollars on the infrastructure needed to support AI applications, Alphabet and Microsoft both expect quarterly revenue growth as more users take advantage of services such as the Copilot AI assistant and Gemini chatbot. reported that it exceeds.
He added that near-term AI demand slightly exceeded the company's capabilities, which constrained growth in the quarter and highlighted the need for spending to expand infrastructure.
At Google, cloud revenue increased approximately 28% due to strong growth in Google Workspace, where the Alphabet division offers numerous AI capabilities powered by its large-scale language model Gemini.
The results contrasted with warnings from social media giant Meta, whose shares fell 10% on Thursday, over higher spending and weaker-than-expected growth.
“This quarter shows that demand for generative AI from Microsoft's customers remains strong, and we continue to believe that Microsoft is in a leadership position in this GenAI environment,” said Gil Luria, an analyst at DA Davidson. “There is,” he said.
“The meta suggests that the results of even more investment could be years away, but Microsoft and Google are showing it right now.”
The results sent shares of Amazon.com, which will report earnings on Tuesday, up 2%. AI chip stocks Nvidia, Broadcom and Marvell Technology also rose 1% to 2%, riding on optimism that a continued spending boom by tech giants will boost demand for semiconductors.
“All three hyperscalers I've talked to so far have been emphasizing similar messages about AI capital spending: This is an arms race, and the opportunities for AI are huge. “Spending will continue to be aggressive/above market expectations,” said Bernstein analyst Michael Chan.
Microsoft's capital spending increased $300 million from the previous quarter to $11.5 billion, while Alphabet's capital spending increased 91% year over year to $12 billion.
At least 19 Alphabet analysts have raised their price targets, with the median estimate rising to $176.65 from the previous close of $156. Microsoft analysts have raised their price targets on 17 occasions, with the median view on the current stock price being $475.
Microsoft's 12-month forward price/earnings ratio (PER) is 30.40 times, while Alphabet's is 21.63 times.
Some analysts believe a more premium valuation is warranted.
“While Google Cloud showed improvement, it did not match Azure's growth. Azure's enterprise focus and its differentiated capabilities have played a role, and we (and the market) have seen better results than Amazon Web Services. “We're waiting,” Bernstein analysts said.
