The tech giant on Tuesday talked about how its customers are perfecting products powered by generative AI, but expects a big jump in sales from the new technology as the cost of developing cutting-edge features increases. Investors are frustrated.
shares of alphabet fell 6%, Microsoft fell 1%, and other big tech stocks like Apple, Meta and Amazon fell.
both microsoft and alphabet reported a sharp increase in cloud revenue in the December quarter, beating Wall Street expectations, as customers lined up to test new AI capabilities and build their own AI services.
But costs have similarly skyrocketed, highlighting the huge investments these companies are making in servers, data centers and research as they compete fiercely for new customer dollars.
That hurt investor expectations, fueled by AI hopes that helped propel stocks to record highs in recent months.
“High valuations mean even the slightest bit of disappointment will attract investors, and Microsoft’s guidance for cloud revenue growth to slow slightly this quarter,” Russ Mould said. was enough to cause stock prices to fall slightly.” Investment Director at AJ Bell.
Gene Munster, a managing partner at Deepwater Asset Management, said his firm is seeking more returns from its holdings in Alphabet and Microsoft.
“Investors are expecting more from AI,” he said of Alphabet. “Microsoft is still in the early stages, but we are seeing advances in AI.”
Alphabet’s stock, which rose 58% in 2023, was trading at 22.26 times forward earnings. In comparison, Microsoft’s forward P/E ratio was 33.09x, Meta’s 22.46x, Amazon’s 42.60x, and Apple’s 27.73x.
“The only problem here is that Google reported earnings on the same night as Microsoft… Given that the big cloud players are growing faster with bigger revenues, AI’s multiple pixie dust (is) difficult to obtain,” Bernstein analysts wrote in a note.
The decline in Google and Microsoft’s stock prices was expected to wipe out about $66 billion and $38 billion of their market capitalization, respectively.
Shares of chipmaker AMD, which on Tuesday raised its 2024 forecast for AI processors to $3.5 billion, fell 3%. Kinngai Chan, an analyst at Summit Insights, said analysts had previously expected AMD to sell $4 billion to $8 billion worth of AI chips, and that the stock’s valuation was tied to those numbers. added.
Alphabet’s capital expenditures increased 45% to $11 billion in the reported quarter. Meanwhile, Chief Financial Officer Ruth Porat said this year’s spending will be significantly higher than in 2023.
