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| Analysts forecast double-digit growth for companies such as Microsoft, driven by artifical intelligence |
AI Takes Center Stage: Big Tech Earnings Poised for Transformation
Over the next two weeks, the quarterly results of Big Tech giants will reveal the financial viability of artificial intelligence and whether the hefty investments in AI are sustainable in the long run.
Analysts at Wedbush Securities, staunch advocates of AI’s potential, anticipate "growth and earnings to accelerate with the AI revolution and the wave of transformation" it brings.
The market is generally optimistic about this AI-driven narrative. Analysts predict double-digit growth for heavyweights Microsoft and Google, whereas Apple, a latecomer to the AI arena, is expected to see only three percent growth.
Apple, which will release its results on August 1, recently introduced its Apple Intelligence system and plans to roll it out gradually over the coming months, initially on the latest models.
CFRA analyst Angelo Zino believes the impact of these new features won't be felt until the iPhone 16 launches in September, the first model to fully integrate these new AI capabilities.
However, Zino expects Apple's upcoming earnings to reflect improved sales in China, a market that has been challenging for the company since last year.
"Apple’s forecasts for the current quarter will be crucial" in assessing the company's momentum, Zino noted. "But if there's one company we're slightly more concerned about, it's Meta."
He pointed out that Meta increased its investment projections last April, dedicating several billion dollars more to the chips, servers, and data centers needed for developing generative AI.
CFRA expects Meta's growth to decelerate through the end of the year, and the anticipated increase in AI-related spending will likely pressure earnings.
For cloud giants Microsoft (reporting on July 30) and Amazon (reporting on August 1), "we expect them to continue to report very good results, in line with or exceeding market expectations," said Zino.
Microsoft is among the best positioned to monetize generative AI, having swiftly integrated it across all its products and investing $13 billion into OpenAI, the startup behind ChatGPT.
Winning the AI race is "crucial" for Microsoft, according to Jeremy Goldman of Emarketer, "but the market is willing to give them a level of patience."
The AI boom has propelled Microsoft's cloud computing business to double-digit growth, though analysts warn this growth may not be sustainable in the long term.
"This type of growth cannot hold forever, but the synergies between cloud and AI make it more likely that Microsoft will maintain reliable cloud growth for some time," Goldman explained.
As for Amazon, "investors will want to see that the reacceleration of growth in the first quarter wasn’t a one-off" for AWS, the company's leading cloud business, said Matt Britzman of Hargreaves Lansdown.
Since AWS is a leader "in everything data-related, it should be well positioned to capture a significant portion of the demand stemming from the AI wave," Britzman added.
The outlook "might be a little less clear" for Google parent Alphabet, which will be the first to publish results on Tuesday, "because of their search business," cautioned Zino.
"Skepticism around AI Overviews," introduced by Google in mid-May, "is certainly justified," said Emarketer analyst Evelyn Mitchell-Wolf.
This new feature, which provides a written summary at the top of Google search results ahead of traditional links, has faced criticism for delivering strange or potentially harmful answers.
According to BrightEdge data relayed by Search Engine Land, the number of searches showing AI-generated results has declined in recent weeks as Google appears to be stepping back from the feature.
Nonetheless, many are concerned about the future of internet advertising if Google continues with the Overviews model, which could reduce the need to click on links. Content creators, particularly in the media, fear a potential revenue collapse.
However, Mitchell-Wolf from Emarketer believes that "as long as Google remains the default search engine on most smartphones and major browsers, it will continue to be the top destination for search, and the top destination for search ad spending."
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