Key Takeaways

Artificial intelligence (AI) was in focus as Meta Platforms (META), Google-parent Alphabet (GOOGL), and Microsoft (MSFT) reported earnings this week, but investors werent easily impressed despite better-than-expected results posted by all three tech giants.

Meta shares plunged after the company emphasized increased spending to invest in AI. Meanwhile, Alphabet shares surged and Microsoft shares gained as cloud strength seems to ease investors' concerns about the increased AI spending.

Big tech earnings demonstrated that companies' enterprise customer businesses were key to AI monetization last quarter. The emphasis on enterprise offerings persisted with a focus on cloud segments.

Meta's earnings beat was overshadowed by the company's plans to increase spending on AI investments which sent the stock tumbling. The worry for investors in the near term was perhaps how quickly the investment would yield returns, even as analysts said it could boost Meta's position in the long term.

However, investors didn't seem to feel that way about Meta's counterparts.

Alphabet noted increased spending fueled by AI investments. AI-related growth in Google Cloud and YouTube "support the notion that Google is seeing AI tailwinds across the business," analysts at Raymond James wrote.

Microsoft's chief financial offer Amy Hood said the company expects "capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments," during the company's earnings call.

Hood said while the company expects capital expenditures to be higher in the 2025 fiscal year than in 2024, "these expenditures over the course of the next year are dependent on demand signals and adoption of [Microsoft's] services."

While Meta has highlighted its early success in leveraging its AI tech, analysts say investors are looking for more clarity on how it can contribute to the company's existing structure.

"Upside in the near term may be limited," Wedbush analysts wrote in a note, adding that investors are waiting for "more clarity on potential 2025 spending levels," evidence that the company can meet growth expectations despite harder comparables, and sustainable user and advertiser engagement with new AI offerings.

The company generates almost all of its revenue from advertising and has been increasingly looking at ways to leverage AI to boost that revenue. Meta reported that 30% of the content users see on Facebook and 50% on Instagram is delivered by its AI recommendation engines which improve engagement and increase ad efficiency.

Alphabet also has set its sights on AI-driven advertising revenue growth. The companys Chief Business Officer (CBO) Philipp Schindler spoke during its earnings call about how generative AI helps advertisers target their audience better, and tools like Gemini could also aid in creating the images and text they need for those ads.

At Alphabet's recent Google Cloud Next conference, hundreds of the company's enterprise customers spoke about using the cloud platform's genAI tools, with some notable business users including Mercedes Benz and Walmart (WMT).

Alphabet CEO Sundar Pichai said the company is "committed to making the investments required to keep [it] at the leading edge in technical infrastructure" as increased capital expenditures "will fuel growth in Cloud, help [the company] push the frontiers of AI models, and enable innovation across our services, especially in Search."

Pichai outlined the company's "clear paths to AI monetization through Ads and Cloud." He said the "cloud business continues to grow as we bring the best of Google AI to enterprise customers."

While AI initiatives are top of mind for investors, Microsoft's cloud strength fueled its third-quarter earnings beat.

"Cloud and AI continued to fuel upside for Microsoft," Bank of America analysts wrote, saying they "believe Azure strength is enough to drive total revenue growth higher for now."

Microsofts Hood said "I know it isn't as exciting as talking about all the AI projects," but Azure "is still really foundational" to the company's enterprise customers.

Excerpt from:

What We Learned From Big Tech Earnings This Week - Investopedia