This week, major tech companies including Meta, Alphabet, Amazon, and Apple reported earnings. Some companies outperformed expectations, boosted by strong cloud growth. The company’s heavy investment in generative AI has also paid off, with signs of improved internal efficiency.
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This week, tech giants Meta, Alphabet Inc., Amazon Inc., Apple Inc., and Microsoft Inc. announced earnings, and investors focused on the results of their AI investments.
Kate Lehman, chief market analyst at AvaTrade, told Business Insider that the tech giants “all had solid growth, but what really stands out is their clear investment in AI and how “We are laying the foundations for our future strategy.”
Morningstar equity strategist Michael Field told BI that the results were positive overall, pointing to Amazon’s record profits. He added that while Meta and Microsoft’s financial results have been “less well received,” the companies’ underlying growth “remains strong.”
Here are some of the big themes that emerged during earnings week.
cloud is king
Microsoft, Alphabet, and Amazon have seen significant growth in their cloud businesses due to increased demand.
Revenue from Microsoft’s intelligent cloud division, which includes its Azure customer platform, rose 20% year over year to $24.1 billion. Revenue from Azure itself was up 34% year over year, and the company said 12 percentage points of that growth was due to high demand for its AI services.
Jeremy Goldman, senior director of briefings at EMARKETER, told BI that Microsoft’s cloud business has slowed from the “breakneck pace” of last quarter.
“Demand continues to exceed our available capacity,” Amy Hood, Microsoft’s chief financial officer, said on an earnings call Wednesday. He added that he expects second-quarter growth for the company’s cloud division to slow slightly, between 18% and 20%.
Dan Romanoff, senior equity analyst at Morningstar, told BI that the capacity limits raise questions about how much Microsoft, Google and Amazon are investing in their public cloud services.
“Even though Azure is large, it’s running at full capacity, so it’s clear that we need more data centers,” he said.
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Google Cloud’s revenue was modest at $11.4 billion, but grew at a 35% year-over-year rate, driven by “accelerated growth” in its AI division, Alphabet said.
Although Google reports stronger cloud growth, Microsoft still leads in cloud market share, and both are behind Amazon Web Services.
During Thursday’s earnings call, Amazon CEO Andy Jassy gave a particularly bullish outlook for Amazon Web Services’ AI, which saw its revenue rise 19% year over year to $27.5 billion.
Tracy Woo, principal analyst at Forrester, told BI that the increase in cloud revenue speaks to “AWS’ continued market dominance.”
“The company’s flagship services in advertising revenue and online retail have reinforced and protected similar dire perceptions of over-investment in AI AWS compared to its closest competitors in Microsoft Azure,” she said.
Investments in generative AI are starting to pay off.
Big tech companies have poured billions of dollars into generative AI, and we’re starting to see results.
Jassy said the company’s AI division, which includes development tools Bedrock and shopping assistant Rufus, is “growing more than three times faster” than when AWS was at a similar stage in its business evolution. Ta.
“We have proven over time that we can drive sufficient operating margins, free cash flow, and return on invested capital to be a very successful business,” Jassy said on Amazon’s earnings call. “And we expect the same thing to happen here with generative AI. This is a very large, probably once-in-a-lifetime type of opportunity.”
Google CEO Sundar Pichai also acknowledged that AI was a key driver of Google’s quarterly growth, saying the company’s AI investments were “paying off.”
In a note, Bank of America Securities called Google Cloud’s 35% year-over-year growth a “positive surprise” that suggests “the AI growth cycle has arrived.”
Pichai also said the company’s AI Overviews is “doing well,” reaching more than 1 billion users per month. The company said it plans to expand its AI search capabilities to more than 100 countries.
The company is also leveraging AI to increase efficiency within the company. Pichai said more than a quarter of Google’s new code was created by AI and checked by employees.
During Meta’s earnings call, CEO Mark Zuckerberg said that over the past month, more than 1 million advertisers created more than 15 million ads using the company’s generative AI tools. He said the company estimates that businesses using Meta’s image generation see a 7% increase in conversions.
The need to build more data centers and other AI infrastructure is increasing capital spending across the industry.
Microsoft’s total capital spending for the quarter ended Sept. 30 was $20 billion, up from $19 billion in the previous quarter and nearly double the $11.2 billion in the year-ago period.
Hood said the company expects this to “continue to increase” but is keeping a close eye on demand.
Meanwhile, Jassy said Amazon expects capital spending to reach $75 billion this year and plans to invest even more in 2025, primarily in its AWS cloud division.
Morningstar strategist Field told BI that potential investors in AI are excited, but “less excited about how much money big tech companies are dropping into AI development.” ” he said.
“While Microsoft and Meta’s performance was strong, these concerns are what drove the stock price down,” he added. “We expect this theme to continue in the coming quarters.”
AI chips are gaining traction, but not all chipmakers are riding the wave
Samsung’s chip business hasn’t been able to ride the AI wave as well as companies like TSMC. The South Korean conglomerate has struggled to get its chips certified by Nvidia, resulting in it losing ground to local rival SK Hynix.
Jaejoong Kim, executive vice president of Samsung’s memory business, said in an earnings call Thursday that the company is making “meaningful” progress with NVIDIA certification and expects sales to increase in the fourth quarter. Ta. Samsung stock has fallen 28% since the beginning of the year.
But Samsung isn’t the only company with chip problems.
AMD stock fell by as much as 10% on Wednesday. CEO Lisa Su said AMD has “closed a significant portion” of the gap with Nvidia, which controls 80% of the graphics processing unit market. It can handle the large datasets needed to train AI models.
Meanwhile, Jassy said Thursday that Amazon Web Services is investing in its Trainium and Inferentia AI chips.
“We have a strong partnership with Nvidia, but we’re also hearing from customers that they want better cost performance for their AI workloads,” Jassy told analysts.
“There has been significant interest in these chips and we have made multiple visits to our manufacturing partners to produce far more chips than originally planned,” he added.
