“Big tech companies have been under pressure to prove to investors that the huge sums of money being spent on chasing the AI dream won’t become a bubble-popping nightmare,” says AJ Bell head of financial analysis Danni Hewson.
“Every set of results is being carefully scrutinised and failure to deliver is being punished swiftly.”
ALPHABET
“The fact Alphabet’s stock hit new highs in after-hours trading is a clear sign that investors feel Sundar Pichai’s AI gamble is paying off.
“Investors have been demanding exceptional growth in return for exceptional spend, and an 81% increase in revenue over the last quarter certainly qualifies on that front. But it’s where growth is being generated that will really strike a chord.
“Alphabet has been playing catch up when it comes to its cloud division. With rivals pouring in billions of dollars to maintain market share, it’s had no choice but to follow suit.
“Cloud services are the backbone of the tech revolution, enabling businesses of all shapes and sizes to access incredible advances. The fact Alphabet’s cloud business grew by 63% proves it’s winning customers and delivering on those growth promises.
“Google’s core advertising business is also benefiting, with ad sales up for the fourth quarter in a row despite nerves about the global economic backdrop and the impact of tariffs on US customers. There had been concerns that ‘Googling it’ might become a phrase that quietly disappears as AI changes how people are served up information and our devices become more and more intuitive, but Alphabet has acted swiftly to maintain its dominance.
“There is still a little nervousness about how long the AI spending boom might need to rumble on, especially since there was no indication of how high Alphabet’s number could get in the next year.”
AMAZON
“Amazon’s update didn’t set investors’ pulses racing, but shares did manage to edge up in extended trading after what could be called a solid performance by its crucially important AWS arm.
“Whilst 28% growth is nothing to be sniffed at, the market leader is being chased hard by rivals and that’s increasing pressure on the company to keep raiding the piggybank for that next deal to keep customers coming back for more. Andy Jassy might be on the money when he says there is ‘no one tool to rule the world’, but how many tools will emerge from the current dash for supremacy is open to question.
“What will be reassuring investors is the breadth of deals being struck, which suggests if one part fails to deliver on expectations another will be on hand to fill the void and prevent Amazon getting caught up if dominos start to fall.
“As for the core business that most households recognise it for, online shopping revenue was up 12% year-on-year despite continued pressure on consumers – something likely to be tested further by the fallout from the Iran war.”
META PLATFORMS
“There was a familiar pattern to Meta’s latest earnings as investors overlooked the growth churned out by the business and focused instead on yet another big jump in planned spending on AI.
“The company now plans an eyewatering $125 billion to $145 billion outlay on AI infrastructure. That’s more than the individual market value of every company in the FTSE 100 excluding the top four names – and nearly double what it allocated last year.
“You have to spend money to make money but as Meta’s now largely abandoned metaverse experiment shows, the business does not have an unblemished record when it comes to its capital expenditure priorities. Investors want to see a return on this investment but are essentially being asked to show patience and belief that throwing all this cash at AI will eventually be worth it to get ahead in the race.
“Bar a dip in user numbers linked to internet disruption in Iran and Russia, the core business is performing well, with revenue and earnings handily beating expectations. Margins remain strong and advertising income continues to roll in despite the uncertain consumer backdrop.
“Meta did acknowledge the litigation and regulatory risks it is facing. Given how close to the sun the firm is flying with its burdensome AI spending, it can ill afford any setbacks on this front.”
MICROSOFT
“Like a lot of big tech firms Microsoft is spending very heavily on AI and part of this is being driven by surging costs for memory and AI infrastructure amid significant supply pressures.
“At least Microsoft is demonstrating some of the benefits of AI expansion, posting a significant move higher in AI-driven revenue which helped it beat earnings expectations and a material increase in sign-ups to Copilot. This helped balance the scales and meant the results were ultimately greeted with a relative shrug by investors.
“Microsoft initially seemed to have stolen a march on its peers through its tie-up with ChatGPT creator OpenAI, but the garlands for recent iterations of Google’s Gemini and the rapid improvement of other models like Anthropic’s Claude means the playing field is levelling out.
“The cloud computing space remains competitive and there was a sense the market was underwhelmed by growth for the Azure business – particularly when compared with the more explosive growth delivered by some of its counterparts.
“In common with its hyperscaler peers, Microsoft is being judged more harshly in the glare of the huge cash outflows linked to AI. This is shifting the goalposts for what can be considered ‘good’ results.”
