26 April 2024
If you are covering Alphabet’s or Microsoft’s latest financial results, please find below comments from Ben Barringer, technology analyst at Quilter Cheviot:
Alphabet
“Many investors and analysts have been sceptical about Alphabet’s ability to avoid significant disruption from artificial intelligence, but its latest financial figures suggest it is doing okay for now. These were very strong numbers and underline how Alphabet can use AI within its suite of products, especially search and digital advertising, to benefit itself. While it may not be able to replicate its share of the market in search once AI tools are fully up and running, it will remain a significant player and one of the innovators of the tech world.
“It is also looking to bring shareholders on side too with the announcement of a larger share buyback scheme as well as a dividend for the first time. Following in Meta’s footsteps, it appears dividends are becoming fashionable in big tech after years of reinvesting for growth.
“That said, Alphabet is continuing to plough money into innovation and will increase its spend on cloud services to take advantage of the AI trend. There is clearly demand for cloud services but this is turning into an arms race where only the deepest pockets will likely survive. Alphabet are in a good position therefore, although the risks AI presents to its business model means for investors there are better companies out there to explore.”
Microsoft
“On the other side of the fence, Microsoft is laying the blueprint for success when it comes to integrating AI into a business and bringing new products to market. Margins keep climbing and business are engaging with the AI tools that Microsoft has created. This is particularly notable in its Azure Cloud business, with revenues up 31%. Crucially, this is accelerating and within that is being driven by demand for AI.
“Like Alphabet and others Microsoft is also increasing its spending on cloud and AI, and this will be a multi-year investment. As such, the likes of Nvidia and AMD will continue to see demand from big tech for their products, helping to sustain this tech bubble that has formed in recent years.
“Ultimately, though, AI adoption will take time. Companies will need to prepare the data they have, integrate AI within their own business first, get the budget for AI and try to change consumer and corporate habits. This will be incredibly difficult to achieve, but Microsoft has put itself in a fantastic position to be the ones to do so.”
