Meta, Microsoft Share Prices Fall as Alphabet Jumps Amid AI Spending Scrutiny on Wednesday
On Wednesday, the share prices of prominent US technology companies demonstrated volatility as investors assessed the considerable financial commitments directed towards artificial intelligence (AI) initiatives. Meta (formerly Facebook), Alphabet (Google's parent company), Microsoft, and Amazon all released their financial results for the first three months of the year concurrently.
Collectively, these firms are projected to allocate more than USD#500 billion to AI this year. Notably, Meta and Amazon have resorted to extensive job cuts to offset these escalating costs.
Following the announcements, Meta's shares dropped over 5% in after-hours trading. Microsoft and Amazon also saw declines of 2% and 1.6% respectively. In contrast, Alphabet's share price surged by nearly 6%.
Investor Concerns Over AI Returns
Concerns among investors have intensified regarding whether these substantial AI investments will yield adequate returns. Wednesday's reports presented a mixed picture in this regard.
Mark Zuckerberg, Meta's co-founder and chief executive, highlighted a "milestone quarter" for the company, citing user growth and a new AI model release. However, this appeared overshadowed by a further increase in projected costs. Meta's share price fell after it announced plans to spend even more than anticipated on AI projects and infrastructure, raising its projected capital expenditure to as much as USD#145 billion, an increase from a previous maximum of USD#135 billion.
Alphabet's positive performance, underpinned by specific details on tangible business outcomes from its AI spending, led to its stock rise. The company reported a 30% increase in profits and noted a 63% growth in its Google Cloud business, directly attributing this expansion to increased AI adoption by corporate clients.
Microsoft's stock decreased by nearly 2% despite exceeding revenue expectations with a 16% increase to USD#83 billion and a 23% rise in profits to USD#38 billion. The company's significant AI spending, however, impacted its free cash flow, which fell by almost USD#6 billion from the previous year to USD#15.8 billion. Microsoft's chief executive, Satya Nadella, stated that the company's AI business run rate reached USD#37 billion annually, a projection of future sales that lacked specific base-level sales figures for calculation.
Amazon's shares declined after it forecasted lower-than-expected earnings for the upcoming quarter, despite its reported results aligning with analyst predictions. The company recorded a 15% year-over-year increase in profits, and its cloud business expanded by 28%, marking its most significant jump in over four years. Amazon's chief executive, Andy Jassy, also noted the expanding business of manufacturing its own AI chips, claiming an annual run rate of USD#20 billion, again without providing base sales data.
