By the standards of Big Tech’s recent pandemic boom, the beginning of 2023 was not a period in the history books.
Alphabet, Amazon, Meta, and Microsoft reported this week’s 3-9% first-quarter growth, a far cry from two years ago, when surging demand for digital services boosted combined Big Tech revenues by 41%. .
But at the low point of their recent fortunes, the companies still delivered surprises. Rates have recovered again.
In addition to significant cost savings, partly due to a wave of job cuts, a rebound in earnings supported industry margins.
Solid financial performance has bolstered Wall Street’s credibility at a critical time. Investors are gearing up for the tech industry’s next financial turn. A massive increase in spending to prepare for the expected generative artificial intelligence boom.
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Angelo Zino, Senior Industry Analyst at CFRA Research, said: “However, we expect AI to gradually increase revenue over the next few years.”
Despite this week’s strong performance being related to economically sensitive areas such as advertising and IT spending, the tech industry’s biggest players weathered recent economic uncertainty surprisingly well. indicates that
“The tech giants are incredibly resilient and have far exceeded expectations,” said Jim Tierney, head of U.S. growth investments at AllianceBernstein.
The latest figures include strong signs that the slowdown in cloud computing growth, a key business for Amazon, Microsoft and Google, is coming to an end, he added. [tech] As we see suppliers to giant cloud companies pick up orders, the ecosystem”.
On Thursday, Amazon was the latest company to report strong first quarter numbers, with sales and earnings beating expectations.
Its cloud computing division, AWS, has slowed sharply from the 37% revenue growth seen early last year. But 16% in the latest quarter is still better than feared, raising hopes that the slowdown may be coming to an end.
However, according to the latest data provided by Amazon, the issue is still not resolved. On a conference call with analysts, he said AWS growth slowed further in April, dropping to 11%.
The news abruptly reversed the stock price, erasing the 12% gain that occurred after the release of the first quarter numbers.
Nonetheless, Amazon’s strong first quarter seemed to confirm that Big Tech is off to a positive start this year. Microsoft was gearing up two days before him, reporting strong results to its own cloud division and hinting that the market had already turned around.
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Chief Executive Officer Satya Nadella warned earlier this year that Microsoft’s cloud business was likely to see a year of slower growth as customers tried to “optimize” their cloud contracts.
The order may have come earlier than expected. “At some point, the workload can no longer be optimized,” Chief Financial Officer Amy Hood said on her Microsoft earnings call this week.
Signs that things are improving are factoring in “a little bit into our guidance” for the quarter, she added.
Meta’s unexpected return to growth after a 3/4 contraction suggests that another core business of Big Tech, digital advertising, has also performed better than feared this year.
Coupled with significant cost savings, the news boosted Meta’s share price by 15%, further amplifying the strong gains of all big tech companies this year.
This week’s barrage of investor questions on generative AI shows that the technology behind OpenAI’s ChatGPT has yet to become economically significant, but Wall Street is already clinging to new tech. .
Nigel Green, chief executive and founder of wealth management firm deVere Group, said: “Investors are looking at the details of the AI offerings from big tech companies this earnings season. More so than a problem.
What they saw left a generally positive impression. Amazon CEO Andy Jassy said that while overall capital spending will decline this year, the company is still spending more on data centers in anticipation of a surge in demand from AI.
Jassy said:
Microsoft and Meta went one step further and put AI at the center of their investor call as they predicted that technology would improve the performance of their entire business.
Mark Zuckerberg didn’t give figures on the impact of his company’s AI investments, but Meta chief pointed to signs the technology is already making an impact. This includes his 24% increase in engagement on Instagram, largely due to his Reels, his TikTok-like video service that relies heavily on AI. .
Early signs like these bolstered Wall Street’s confidence that as Big Tech pours investment into the next wave of AI, it will find plenty of ways to make money off its expensive new toys.
“Microsoft’s pricing power will be exponentially improved by incorporating AI into its services,” said Zino. “In particular, I think Meta has done a great job of explaining how the AI works now, and how he’s already improving content. This is still a distant future prospect.” In contrast to the Metaverse, which is
If there was a shadow on the AI horizon, it was Google. Google’s core search business is widely considered to be most exposed to the rise of generative AI. Parent company Alphabet is one of the companies to warn of increased capital spending driven by AI, with costs starting to climb in the second quarter and rising steadily from there.
CEO Sundar Pichai has tried to reassure investors that Google will find ways to lower the cost of running its AI-powered services while coming up with new ways to profit from them.
But the lack of specific details failed to allay concerns, and Alphabet’s share price plunged the day after it reported growth in its search advertising business had recovered.
