Since the announcement of earnings reports, Google and Microsoft stock prices have fallen by more than 8%, and Amazon has dropped nearly 9% in one day. As the business that most clearly benefited from generative AI, the cloud computing division of the three giants grew steadily in the second quarter, but this was not enough to reassure investors, who are increasingly eager to see the rewards of investing heavily in data centers and other AI infrastructure.
From Google's parent company Alphabet, which released earnings reports last week, to Microsoft and Amazon, which released earnings reports this Tuesday and Thursday, the tech giants failed to convince Wall Street this earnings season. Their actions to spend a lot of money on the artificial intelligence (AI) field have actually boosted the company's sales.
Stock market investors have already voted with their feet and directly expressed dissatisfaction with the financial reports of the three giants mentioned above through stock price performance. Based on the closing price, Alphabet's stock price has fallen by about 8.3% as of Friday, Microsoft's earnings report fell by about 8.3% as of this Friday. The three-day decline (444.85) was about 8.2%. Amazon, which released its earnings report after the Thursday market, jumped 9.4% lower on Friday. It fell 12.8% during the day when the early trading refresh day was low, and finally closed down about 8.8%.
Daniel Morgan, senior portfolio manager at Synovus Trust, commented that AI technology represents a huge opportunity, and this opportunity continues to grow. Unfortunately, the upfront investment was also huge and growing. As a result, investors can't help but ask: Can these corporate giants get enough incremental profit growth from their investments?
According to the review, the performance of the three tech giants in relation to AI returns in this earnings season was not without highlights. Their cloud computing business unit is growing steadily, and this is the business that most clearly benefits from generative AI. However, this growth is not enough to reassure investors, who are increasingly eager to see the rewards of investing heavily in data centers and other AI infrastructure season after season.
Deutsche Bank recently pointed out in an analysis: “Until now, revenue has been mainly limited to the cloud business sector, where companies train and run AI models. However, outside of the cloud business, the signs of return on investment are more qualitative than quantitative, and the return on AI investment is difficult to measure with specific numbers.”
Wall Street News has mentioned that the market performance of this earnings season shows that investors are becoming increasingly impatient with the practice of technology companies profiting by investing heavily in AI. The cost shadow is looming over tech giants, and the market is increasingly worried about the return on huge AI investments. Faced with market concerns, tech giants unanimously stated that they would definitely “burn money.” After announcing the earnings report last week, Alphabet and Google CEO Pichay emphasized that the risk of the company's underinvestment in the AI field far outweighs the risk of excessive investment.
Both Meta and Microsoft, announced this week, are expected to increase asset spending. Meta emphasized that capital expenditure will increase substantially in 2025, and infrastructure costs are an important driver, which will continue to support AI research and product development efforts. Microsoft's vice president of investor relations Brett Iversen said that in the future, the company will continue to increase spending to meet “strong customer demand,” and the capital expenditure for fiscal year 2025 is expected to be higher than fiscal year 2024.
All of the third-quarter operating profit guidelines announced by Amazon this Thursday fell short of analysts' expectations. Operating profit growth exceeded expectations and slowed sharply, with a minimum increase of less than 3%. At a time when profits are being pressured by AI investment, Amazon's Chief Financial Officer (CFO) Andy Jassy also told analysts during a performance call: “It's actually a positive indicator when we increase capital expenditure.”
Amazon's capital expenditure for the first half of this year totaled $30.5 billion, mostly for the cloud business unit AWS. According to Jassy, Amazon has developed complex algorithms to guide its investment decisions in order to establish sufficient production capacity to meet demand without affecting profits. He promised that these investments are worth it because they can support AI services, a business that Amazon previously called “a multi-billion dollar revenue operating rate.”
Compared to Alphabet, Microsoft, and Amazon, which were generally lower after the announcement of earnings reports, Meta, which started with social media Facebook, can be described as going against the current trend. Since the earnings report was announced after the Wednesday market this week, Meta had risen 2.8% as of Friday's close. This is still a narrowing increase after falling back on Friday and closing down 1.9%.
Meta unexpectedly raised the lower limit of its annual capital expenditure range this time, also due to AI investment. However, Meta's second-quarter revenue was higher than expected. Meta CEO Zuckerberg believes that the company's spending on AI has driven improvements in ad targeting and content recommendations. He believes Meta's huge AI spending is a short-term sacrifice in exchange for long-term benefits.