Week of relief for Microsoft and Google but AI falls short for other tech titans
'Alphabet is tremendously well managed, its free cash flow is absolutely astonishing, and it has a massive R&D budget,' one analyst said. File picture: Jeff Chiu/AP
Google-owner Alphabet and Microsoft ended the week on a high, after their latest earnings satisfied stock market investors that the promise of new artificial intelligence (AI) products will deliver.
For others, including Facebook-owner Meta and chipmaker Intel, investors have yet to be convinced.
Apple, which reports next week, still faces scrutiny about its AI plans.
Shares in the Google parent jumped 10% over the past week, adding billions to the stock market valuation of more than $2.1tn, after delivering on Thursday night better-than-expected revenues of $80.5bn in the first three months to the end of March.
The financial performance was boosted by the AI products sold to its cloud computing customers, and the shares performance was supercharged by the announcement it would pay out a debut dividend to shareholders.
For the time being, the Google owner is the pick of the crop. While the shares breached the $2tn level briefly in 2021, and again earlier this month, Alphabet shares have closed above it for the first time.
Doing so puts it into rarefied territory — only Apple, Microsoft, oil giant Saudi Aramco, and chipmaker Nvidia have surpassed the threshold.
Nvidia, driven by massive demand for its AI chips, surpassed $2tn earlier this year, while Amazon is not far from $2tn itself.
“Alphabet is tremendously well managed, its free cash flow is absolutely astonishing, and it has a massive R&D budget,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.
“So, while no one knows what company will have the best AI products, this is a tough one to bet against.”
The path to $2tn has been somewhat rocky.
The shares have been volatile amid some high-profile criticism about the company’s AI offerings and, prior to the latest report, some investors had questioned its ability to compete with firms like OpenAI in this critical area — despite spending heavily in the field for years.
Microsoft, which has this year done more than most to satisfy shareholders with investments in the AI future, posted on the same night revenue of almost $62bn for its quarter — far exceeding many estimates, and helping the shares end the week almost 2% higher.
Microsoft has a market valuation of $3tn.
Between them, Google and Microsoft employ more than 5,000 people in Ireland.
They pay significant, though unspecified, amounts to the Irish exchequer by way of corporation tax receipts.
The significance of the two tech giants surviving the first of the AI tests this week will not be lost on the Government here.
There was less positive earnings news from other US tech giants, which also employ many thousands of people in Ireland, relating to their securing hefty returns from the AI future.
Shares in Meta ended the week 10% lower, for a market valuation of $1.1tn, after the owner of Facebook and Instagram delivered a message that underwhelmed investors — concerning its long path to secure returns on the huge investments entailed in AI products.
The tumble for Meta shares that wiped out around $170bn from its stock market valuation this week suggests that investors are getting much more selective about the AI hype.
The shares are nonetheless still significantly higher than at the start of the year.
The woes of AI hit Intel the most. The chipmaker — which employs around 5,000 people at its sprawling site in Leixlip, Kildare, and at Shannon, Clare — forecast revenue for its second quarter of up to $13.5bn, slightly below analysts’ estimates.
Intel shares ended the week 7% lower, extending its losses this year to 31%.
In contrast, shares in Nvidia — which appears to be best placed to deliver the chipsets that will be required to drive the huge additional demand that AI products will put on data centres — continue to prosper.
Nvidia shares surged 10% in the past week, and have now soared 220% from a year ago, to value the company at $2.15tn.
Unlike Intel, the chipmaker has no major presence in Ireland.
However, it competes with Intel in selling into data centre customers around the world.
Separately, Apple — whose shares have fallen since the start of year — ended the week higher with a stock market valuation of $2.63tn.
The focus of Apple investors has so far been glued to its struggles against local rivals in the iPhone market in the key Chinese market, but chief executive Tim Cook will also face scrutiny about its plans for investments for AI products next Thursday, when the $2.63tn giant delivers its latest quarterly results card.
- Additional reporting by Bloomberg
