All Eyes on AI to Drive Big Tech Earnings

Over the next two weeks, the quarterly results of Big Tech giants will offer a glimpse into the bankability of artificial intelligence (AI) and whether the major investments AI requires are sustainable for the long haul. Analysts at Wedbush Securities, one of Wall Street’s biggest believers in AI’s potential, expect “growth and earnings to accelerate with the AI revolution and the wave of transformation” it is causing.

The market generally agrees with this optimistic AI narrative. Analysts forecast double-digit growth for heavyweights Microsoft and Google, in contrast to Apple, a latecomer to the AI party, with only three percent growth expected. The iPhone maker, which releases its results on August 1, unveiled its new Apple Intelligence system only last month and plans to roll it out gradually over the next months, and only on the latest models.

CFRA analyst Angelo Zino believes that the impact of these new features will not be felt until the iPhone 16 launches in September, the first to feature the new AI capabilities built-in across all options. However, he expects Apple’s upcoming earnings to show improvement in China sales, a weak spot since last year. “Apple’s forecasts for the current quarter will be important in assessing the company’s momentum,” said Zino.

However, Zino expressed some concerns about Meta. He pointed out that Mark Zuckerberg’s company raised its investment projections last April, devoting a few billion dollars more on the chips, servers, and data centers needed to develop generative AI. CFRA expects Meta’s growth to decelerate through the end of the year, and combined with the expected increase in spending on AI, earnings are likely to be under pressure.

As for the earnings of cloud giants Microsoft (July 30) and Amazon (August 1), Zino said, “we expect them to continue to report very good results, in line with or better than market expectations.”

‘Crucial’ Bet

Microsoft is among the best positioned to monetize generative AI, having moved the fastest to implement it across all its products and pouring $13 billion into OpenAI, the startup behind ChatGPT. Winning the big bet on AI is “crucial” for the group, said Jeremy Goldman of Emarketer, “but the market is willing to give them a level of patience.”

The AI frenzy has helped Microsoft’s cloud computing business grow in the double digits, something that analysts said could be hard to sustain. “This type of growth cannot hold forever, but the synergies between cloud and AI make it more likely that Microsoft holds onto reliable cloud growth for some time to come,” Goldman said.

As for Amazon, “investors will want to see that the reacceleration of growth over the first quarter wasn’t a one-off” at AWS, the company’s world-leading cloud business, said Matt Britzman of Hargreaves Lansdown. Since AWS leads “in everything data-related, it should be well placed to capture a huge chunk of the demand coming from the AI wave,” he added.