Alphabet and Microsoft both saw a boost in stock prices after reporting better-than-expected quarterly results. While Meta Platforms stumbled after announcing plans for an AI investment surge and disappointing guidance. Both Alphabet and Microsoft are experiencing growth in demand for their generative AI services, leading to potential additional growth.
Alphabet reported strong performance in search, YouTube, and Cloud, with revenue of $80.54 billion in Q1 2024, earnings per share of $1.89, YouTube advertising revenue of $8.09 billion, and Google Cloud revenue of $9.57 billion. The company also announced a stock buyback, dividend, and plans for more significant profits from the cloud unit, driven by AI offerings that boosted core search results in the quarter.
Microsoft also beat expectations with revenue of $61.9 billion in Q3 2024 and earnings per share of $2.94, driven by AI adoption across its cloud services. The company is hopeful that its Copilot and Copilot stack will generate new revenue for its software business, with a significant increase in Azure cloud services revenue.
Both Alphabet and Microsoft are making record investments in the future, with Alphabet doubling its capital expenditures to $12 billion in the most recent quarter, while Microsoft spent $14 billion on data centers and infrastructure. The companies are focused on meeting the rising demand for AI services and building the capacity needed to generate revenue.
Analysts believe that generative AI could add billions to Microsoft’s revenue, with estimates ranging from $14 billion to $40 billion by 2028. However, some customers have expressed concerns about the high cost of operating AI chatbots, with Microsoft reportedly losing money per user due to the high cost of computing. Alphabet sees opportunities to monetize AI through its advertising products, cloud offerings, and subscription services.
Analysts are bullish on Alphabet and Microsoft, with Wedbush analyst Scott Devitt raising his price target for Alphabet to $205 a share, citing the increasing contributions of AI to growth. Microsoft’s average price target also implies significant upside, with analysts expecting 16.4% growth. Both companies could be good investments if they report specific revenue contributions from generative AI in the future.
