What Alphabet and Microsoft are saying about A.I. on their earnings calls
Second-quarter earnings season brought heavyweight technology giants and artificial intelligence frontrunners Alphabet and Microsoft head-to-head in an all-too-familiar matchup. But despite ongoing confidence in their capabilities from Wall Street and the investing community, both offered a hint of caution when highlighting upcoming plans for their AI expansion. Alphabet shares rose 6% after the company reported better-than-expected quarterly results and 28% year-over-year growth in cloud revenue, while Microsoft lost 4% on disappointing revenue guidance and a delayed AI rollout . The moves put Alphabet shares up about 47% and Microsoft higher by 41% for the year, with both benefiting from the productivity promise of AI and from expectations that other companies will come to them for AI expertise. GOOGL YTD mountain Alphabet shares in 2023 Both Alphabet and Microsoft have spearheaded the effort, facing off with competing chatbots early in the year. Many analysts and investors looked to this quarter’s results for insight into their AI monetization plans and a check-in on their progress. However, both companies mentioned rising costs or a slower-than-expected ramp-up, as these plans and products play out. Alphabet Alphabet rolled out its Bard chatbot worldwide during the second quarter, removed a testing waitlist and added a host of new capabilities. CEO Sundar Pichai said on Tuesday’s earnings call that the product, now available in more than 40 languages, is experiencing strong interest for coding purposes. He also added that more than 750,000 Workspace users are utilizing the company’s Duet AI addition, a chatbot tool to help developers. According to Pichai, Alphabet is ahead of internal expectations in integrating generative AI into its search business, with about 80% of advertisers currently using at least one AI-related product in Search ads. “We’ve just improved our efficiency pretty dramatically since the product launch,” Pichai said. “The latency has improved significantly. We are keeping a very high bar, but I would say we are ahead on all the metrics in terms of how we look at it internally and so couldn’t be more pleased with it.” That said, Alphabet cautioned about rising costs resulting from these AI investments. Chief Financial Officer Ruth Porat, who will transition into the role of president and chief investment officer, said that Alphabet is expecting elevated capital expenditures in the back half of the year and into 2024 as it supports AI opportunities. That includes investments in graphics processing units underpinning many large language models and data centers, along with tensor processing units . Although questions linger over how AI will affect Alphabet’s products and costs, Goldman Sachs analyst Eric Sheridan reiterated his confidence in the search giant, calling it a “leader in compounded AI investment” that’s positioned to capitalize in the next 10 years. Microsoft Despite confidence in Microsoft’s long-term capabilities, some investors and analysts seemed disappointed by the seemingly delayed rollout of many of its AI products. That included its recently announced AI Copilot feature for Microsoft 365, which will cost $30 in addition to a base subscription. “Even with strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales and our Copilots reach general availability dates,” Chief Financial Officer Amy Hood said on Microsoft’s earnings call. She also warned that the company would experience a greater impact on revenue in the second half of the fiscal 2024 year as Microsoft invests in building out its AI infrastructure and meeting demand. “The messaging on Copilot was more about tempering rather than inflating expectations,” wrote UBS analysts led by Karl Keirstead. Even so, Microsoft management reiterated its confidence in the company’s AI potential. CEO Satya Nadella said Microsoft is “in the lead” with new cloud-based AI workloads and that the 600 paid customers currently testing its Copilot feature view it as “a game changer.” He also noted that Bing users have created more than 750 million images using its Bing Image Creator AI feature. — CNBC’s Michael Bloom contributed reporting.
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