American technology giants are expected to report their most robust quarterly revenue growth in over a year, mainly due to the stabilization of their core businesses. However, investors seeking indications of a significant impact from artificial intelligence (AI) might not find the results they were hoping for.
Microsoft, Google’s parent company Alphabet, Meta Platforms, which owns Facebook, and Amazon are anticipated to have capitalized on the rebound in their enterprise software and digital advertising sectors. This growth has been made possible by the consistent spending of both professionals and consumers, even in the face of a volatile global economy.
The shares of these four companies have shown impressive gains this year, ranging from a 36% increase for Microsoft to a substantial 157% surge for Meta. This surge has propelled their collective market capitalization to exceed $6 trillion, contributing to the upward movement of the S&P 500 index.
Gil Luria, a senior software analyst at D.A. Davidson, expressed that after a year in which enterprise spending was restrained due to economic uncertainties, the upcoming year appears to be characterized by reduced concerns, thus creating a more stable environment for investment in enterprise software and advertising.
Although there was a stabilization in enterprise demand for older products, this stability didn’t extend to cloud computing, which serves as a cornerstone for both Microsoft and Amazon. It’s expected that these two companies experienced only a slight improvement from the record-low growth rates they saw in the previous quarter.
However, analysts suggest that Microsoft may report some positive outcomes from its investments in OpenAI and the integration of AI technology into its product offerings. The company had committed to substantial expenditure to meet the demand for its AI-related products.
According to RBC Capital Market’s estimates, Microsoft is projected to generate more than $3 billion in revenue from generative AI offerings in the current fiscal year.
However, for some companies, investments in AI, such as the costly purchase of Nvidia chips, may have a negative impact on their short-term financial performance.
Rishi Jaluria, an analyst at RBC, believes that these AI investments may not significantly impact revenue until 2025, as enterprises are still in the process of formulating their strategies for generative AI.
In the upcoming earnings reports, Microsoft is expected to reveal a nearly 9% increase in first-quarter revenue, primarily driven by the strength of its enterprise productivity software business. At the same time, the company’s costs are estimated to have risen by 8.4%, marking the most significant increase in a year.
Alphabet is anticipated to report a 10% rise in quarterly sales, with revenue from Google Services, including YouTube, Search, and app sales, expected to have grown by 8.5%. Both Alphabet and Meta are poised to benefit from increased digital ad sales in preparation for the holiday shopping season.
Meta is also expected to announce a more than 20% increase in quarterly revenue, the highest in two years, and unveil its AI plans, following the recent introduction of AI ad tools.
Nonetheless, the growth of cloud computing for all these companies is projected to show minimal improvement as clients seek ways to optimize their infrastructure costs. Amazon Web Services and Microsoft’s Azure are likely to have grown by 12.4% and 26.2%, respectively, in the quarter, whereas Google is expected to record an estimated growth of 25.7%, taking their place among the leaders.
Nevertheless, Amazon is likely to benefit from robust retail sales, supported by a robust job market. The e-commerce giant is expected to announce an 11.3% increase in revenue on Thursday.
Meta is set to release its earnings report on Wednesday, and Apple will conclude the Big Tech earnings season with its results next week on November 2.
Reported by Yuvraj Malik and Zaheer Kachwala in Bengaluru; Edited by Sayantani Ghosh and Savio D’Souza.