NEW YORK: Over the next two weeks, quarterly results from big tech giants will offer a glimpse into the bankability of artificial intelligence and whether the major investments AI requires are sustainable over the long term.
Analysts at Wedbush Securities, one of Wall Street’s biggest proponents of AI’s potential, expect “growth and profits to accelerate with the AI revolution and the wave of transformation” it is causing.
The market generally agrees with this rosy AI story. Analysts are predicting double-digit growth for heavyweights Microsoft and Google, as opposed to AI laggard Apple, which is only expected to grow three percent.
The iPhone maker, which publishes its results on August 1, introduced its new Apple Intelligence system just last month and plans to gradually roll it out over the coming months, only to the latest models.
CFRA analyst Angelo Zino believes the impact of these new features won’t be felt until the iPhone 16 launches in September, which will be the first to include the new AI capabilities built into every option.
But he expects Apple’s upcoming earnings to show an improvement in sales in China, which has been a black spot since last year.
“Apple’s forecasts for the current quarter will be important” in assessing the company’s momentum, Zino said.
But “if there’s anyone we were maybe a little bit more interested in than the others, it would be Meta,” he said.
He pointed out that Mark Zuckerberg’s company raised its investment projections last April when it committed several billion dollars more to the chips, servers and data centers needed to develop generative artificial intelligence.
CFRA expects Meta’s growth to slow by the end of the year. Combined with the expected increase in AI spending, this should put earnings under pressure.
As for the earnings of cloud giants Microsoft (July 30) and Amazon (August 1), “we expect them to continue to perform very well, in line with or better than market expectations,” Zino said.
Microsoft is among those best positioned to monetize generative artificial intelligence, having been the fastest to implement this AI in all of its products and pouring $13 billion into OpenAI, the start-up spin-off of ChatGPT.
Winning a big bet on artificial intelligence is “crucial” for the group, said Jeremy Goldman of Emarketer, “but the market is willing to give them a degree of patience.”
The artificial intelligence craze has helped Microsoft to double-digit growth in cloud computing, which analysts say is difficult to sustain.
“This type of growth can’t last forever, but the synergies between cloud and AI make it more likely that Microsoft will maintain reliable cloud growth for some time to come,” Goldman said.
As for Amazon, “investors will want to see that the re-acceleration of growth in the first quarter was not a one-off” in AWS, the company’s leading global cloud business, said Matt Britzman of Hargreaves Lansdown.
With AWS leading “in everything data-related, it should be well-positioned to capture a huge portion of the demand coming from the AI wave,” he added.
The picture “may be a little less clear” for Google parent Alphabet, which will be the first to report results Tuesday “because of its search business” online, Zino warned.
“The skepticism surrounding AI reports,” which Google introduced in mid-May, “is certainly justified,” said Emarketer analyst Evelyn Mitchell-Wolf.
This new feature, which offers written text at the top of Google search results, ahead of traditional website links, got off to a rocky start.
Internet users were quick to report strange or potentially dangerous responses suggested by the feature, which Google executives touted as the future direction of search.
According to data from BrightEdge, reported by Search Engine Land, the number of searches representing a result generated by AI reports has fallen sharply in recent weeks as Google has dropped the feature.
Still, many worry about the evolution of Internet advertising if Google continues with the Insights model, which reduces the need to click on links. Content creators, especially the media, fear a collapse in revenue. But for Emarketer’s Mitchell-Wolf, “as long as Google maintains its status as the default search engine on most smartphones and major browsers, it will continue to be the top search destination and top search ad spend.”
