31 January 2024
If you are covering Alphabet or Microsoft’s latest financial results, please find below a comment from Ben Barringer, technology analyst at Quilter Cheviot:
Alphabet
“Alphabet has seen a return to a buoyant advertising market, and this has helped keep revenues in line with expectations, although it should be noted that the market was hoping for a little better. Its YouTube TV offering is delivering good growth, helped by the NFL package it has available to subscribers, further hampering the traditional linear TV market.
“Interesting the business has seen an acceleration in its cloud computing unit too as business look to adopt artificial intelligence capabilities and go through less cost-cutting now the economic picture is beginning to improve. This has pushed Alphabet to reallocate resources and spend more on the cloud. Despite the buoyant advertising market, Alphabet is behind other competitors when it comes to cloud computing and AI. As such, it has to spend in order to keep up.
“That said, Alphabet remains an AI winner, but there are big risks around its search function and the disruption it is likely to see from those who can better implement AI tools.
Microsoft
“Microsoft, on the other hand, remains the full tech stack offering that is the default for businesses and consumers when arranging IT requirements. This is underlined in its recent results with revenue growth at 17%, driven predominantly from its Azure cloud service. However, it is not reliant on growth of the cloud and it appears everything is doing well.
“Importantly, Microsoft’s PC business is also recovering well after a difficult post-Covid period. The rollout of Windows 11 is helping drive sales, while we are also in the sweet spot post-Covid where everyone who bought new tech in lockdown is now looking to replace it for something more modern and sleek.
“Going forward, Co-Pilot is the product to watch for Microsoft. This year we expect c5-10% of user to get the AI tool within the Office suite of products, with the idea of big productivity gains being realised. We would be looking for that number to climb to around 30% in the next couple of years, and we think that is realistic given the march Microsoft has stolen on competitors in this space.”
