Costs of arms race between Microsoft and Alphabet AI amount to $22.5 billion


  • Microsoft and Alphabet launched a major series of technology reports on Tuesday
  • Windows owner’s momentum was driven by its AI dominance
  • In contrast, Alphabet is considered an AI laggard among its peers.

Shares of Microsoft and Alphabet were trading lower at the open in the United States on Wednesday, as investors weighed booming sales and rapid cost growth at the tech giants.

The pair kicked off a series of important tech earnings updates on Tuesday evening, with analysts are closely monitoring the couple’s adoption of artificial intelligence.

However, the findings sparked concern among some investors after the collective costs of the pairs’ AI campaign were found to have exceeded $22bn (£17.3bn).

Microsoft's Azure cloud platform has an OpenAI service that offers customers advanced language AI with OpenAI GPT-4, GPT-3, Codex, DALL-E, and Whisper models.

Microsoft’s Azure cloud platform has an OpenAI service that offers customers advanced language AI with OpenAI GPT-4, GPT-3, Codex, DALL-E, and Whisper models.

The so-called Magnificent Seven tech stocks, which also include Apple, Amazon, Meta, Nvidia and Tesla, generated a substantial share of global equity gains in 2023 with a cumulative return of 109 percent compared to the MSCI World’s 23 percent gain.

Apple, Amazon and Meta will report their performance for the final quarter of last year on Wednesday, while Nvidia will do so at the end of February.

Tesla, the world’s second-largest electric car maker, last week announced a profit of £1.6 billion for the final three months of last year. up from £3 billion the previous year, and warned that production was likely to slow in 2024.

Windows owner Microsoft reported revenue of $62.02 billion (£48.81 billion) for the final quarter of 2023, an 18% year-on-year jump and beating forecasts of 61 .14 ​​billion, with performance driven by its AI-powered Azure cloud platform and Chatbot co-pilot.

Microsoft’s stock price has been inflated by the AI ​​gold rush over the past 18 months, bringing its market capitalization beyond the $3 trillion markas investors are betting, it will become the dominant force in cutting-edge technology.

But investors in Microsoft, which also reported an encouraging recovery in its PC business thanks in part to its £60 billion acquisition of Activisionhave had to think about costs that continue to skyrocket

Ben Barringer, technology analyst at Quilter Cheviot, said: “Going forward, (AI chatbot) Co-Pilot is the product to watch for Microsoft.

“This year, we anticipate that 5-10% of users will benefit from the AI ​​tool in the Office product suite, with the idea of ​​realizing significant productivity gains.

“We expect that figure to rise to around 30 percent over the next two years, and we think that’s realistic given the lead that Microsoft has stolen over its competitors in this area.”

Microsoft, which is the largest stock in the S&P 500 and Nasdaq 100, has now exceeded earnings per share expectations for six consecutive quarters.

Wedbush analyst Daniel Ives added: “This is another quarter of (Microsoft) masterpieces and advice that will have a major impact on the technology world tomorrow, as the AI ​​revolution is here.

“We believe this is the start of a multi-year initiative to drive meaningful AI use cases for customers across the enterprise landscape to drive efficiencies while accelerating profitable growth, with Redmond leading this potential $1 trillion opportunity.

Alphabet pins its hopes on ad spending

In contrast, fourth-quarter results from Alphabet, Google’s parent company, disappointed investors, with advertising revenue of $65.5 billion in the fourth quarter, up from $59 billion in the previous quarter. last year, but below forecasts of $66.1 billion.

Alphabet, which also owns YouTube, faces growing competition for corporate marketing budgets from companies like Facebook, Instagram and TikTok.

The group, which has so far been called an AI laggard among its peers, also said it would have to increase spending, with new costs such as new servers to power the technology.

Alphabet’s capital spending soared 45% to $11 billion, and Chief Financial Officer Ruth Porat said that figure would be significantly higher in 2024.

It comes like the group cut jobs globally in the new year as part of a cost-cutting drive, adding to the bloodbath experienced by the industry in 2023, when more than 260,000 employees were laid off.

Wedbush analysts said: “Alphabet reported healthy Q4 results with total revenue…above consensus and operating profit…slightly above expectations.

“Despite strong results on a consolidated basis, shares are under pressure after hours, reflecting… high expectations heading into the release… a slight shortfall on consolidated advertising revenue… and spending on investment on the rise. »


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