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Microsoft is well-positioned to capitalize on generative AI, having rapidly integrated it into all its products and invested $13 billion in OpenAI, the company behind ChatGPT.

  • Updated On Jul 22, 2024 at 07:28 AM IST

In the upcoming weeks, quarterly results from Big Tech companies will shed light on the viability of artificial intelligence and the sustainability of their significant investments in AI.

Wedbush Securities analysts, strong proponents of AI, predict that “growth and earnings will accelerate with the AI revolution and the transformation it brings.”

Market sentiment aligns with this optimistic view, with forecasts indicating double-digit growth for industry leaders like Microsoft and Google, while Apple, a newcomer to the AI scene, is expected to see only three percent growth.

What about Apple’s new AI features?

The iPhone maker, set to release its results on August 1, introduced its new Apple Intelligence system last month, planning a gradual rollout over the coming months, starting with the latest models. CFRA analyst Angelo Zino suggests that the impact of these features may not be realized until the iPhone 16 launches in September, which will be the first model to fully integrate these new AI capabilities.

However, Zino anticipates that Apple’s upcoming earnings will show improvements in sales from China, a market that has been challenging since last year.

Concerns for Meta

“If there’s one company we might be more concerned about, it would be Meta,” Zino noted. He pointed out that Mark Zuckerberg’s company increased its investment projections last April, committing additional billions to the chips, servers, and data centers necessary for developing generative AI.

CFRA expects Meta’s growth to slow down through the end of the year, and combined with rising AI-related expenses, this could pressure earnings.

What to expect from Microsoft and Amazon?

Regarding earnings from cloud giants Microsoft (July 30) and Amazon (August 1), Zino believes they will likely report strong results, meeting or exceeding market expectations.

Microsoft’s rapid adoption of generative AI has significantly boosted its cloud computing division, contributing to double-digit growth, although analysts caution that such growth may not be sustainable indefinitely.

“This type of growth cannot hold forever, but the synergies between cloud and AI make it more likely that Microsoft can maintain reliable cloud growth for some time,” Goldman stated.

For Amazon, investors will be keen to see if the growth acceleration observed in the first quarter is sustainable at AWS, the leading cloud service provider, as it is well-positioned to capture demand from the AI surge.

What about Google?

The outlook for Google parent Alphabet is less clear, particularly due to its online search business. Zino cautioned that skepticism surrounding AI Overviews, a feature introduced by Google in mid-May, is warranted. This feature, which provides a summary at the top of search results, has faced criticism for delivering odd or potentially harmful responses.

According to data from BrightEdge, reported by Search Engine Land, the number of searches yielding AI-generated results has sharply declined as Google distances itself from this feature.

Concerns remain regarding the future of online advertising if Google continues with the Overviews model, which diminishes the need to click on links, potentially threatening revenue for content creators.

However, Emarketer’s Mitchell-Wolf believes that as long as Google retains its status as the default search engine on most smartphones and major browsers, it will continue to dominate search and search ad spending.

  • Published On Jul 22, 2024 at 07:27 AM IST

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