Microsoft, Alphabet and AMD tout AI progress, but investors want tangible results

Shares of the tech giants slipped in late trading Tuesday after they delivered results for the last three months of 2023 and forecasts for the current quarter. All three took pains to highlight progress on AI. In AMD’s case, the company predicted that its new AI processors will generate even more sales than expected. Microsoft touted how users were embracing its AI assistants, and Google said the technology was improving its search and cloud computing services.

But investors had bid up shares of the companies to record highs in recent weeks, betting that an AI bonanza would quickly fuel results. What they heard on Tuesday wasn’t enough to satisfy those hopes.

“Companies are continually having to prove themselves and continually prove the value proposition of AI,” Katrina Dudley, a portfolio manager and analyst at Franklin Templeton, said on Bloomberg Television.

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Microsoft and Google, two rivals in AI software and cloud computing, delivered mostly good news in their reports – but still elicited a ho-hum from investors.

At Microsoft, revenue increased at the fastest rate since 2022, spurred in part by AI products helping drive adoption of its data-centre services. Revenue from its Azure cloud-services unit jumped 30 per cent.

AI demand boosted that growth rate by 6 percentage points, chief financial officer Amy Hood said. That was up from 3 percentage points the previous quarter – an acceleration that that UBS Group AG analyst Karl Keirstead called “just extraordinary” on a call with company executives. Microsoft didn’t disclose how much it expected AI to bolster Azure in the current period.

Despite the momentum, Microsoft shares slipped in late trading. Wall Street wanted more clarity on how much AI will contribute to financial performance going forward, said CFRA Research analyst Angelo Zino. “Investors want them to quantify the AI potential over the next couple years,” he said.

“In terms of AI contribution for Microsoft, that’s not the way this is going to work,” Zino said. “This is going to be a slower slog than maybe some might have anticipated.”

‘Much faster’

In November, Microsoft released its 365 Copilot – an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams. The company didn’t give specifics on subscriptions for the product, but chief executive officer Satya Nadella said on the conference call that adoption was “much faster” than with previous versions of the software.

With Google, softness in its core search advertising business raised concerns. But its quarterly report also sparked questions about whether it’s being aggressive enough in AI – and risks falling behind Microsoft.

A slowdown in its ad business – the company’s main moneymaker – also could threaten AI ambitions, said Evelyn Mitchell-Wolf, an analyst at Insider Intelligence.

“Google advertising does make up the vast majority of its revenue,” she said. “As it prepares to really go full throttle on all of its carefully laid plans in AI, having that cash cow experience volatility doesn’t bode well.”

AMD’s new chip

AMD’s stock had been one of the favourite picks of investors looking for ways to bet on AI computing. Its shares have been the second-best performing stock on the Philadelphia Stock Exchange Semiconductor Index this year, following a similar performance in 2023.

That meant AMD had a high hurdle to clear with its quarterly report.

It didn’t help that the chipmaker’s sales forecast for the current quarter was short of most estimates. But the company said that its highly anticipated MI300 AI accelerator chip is generating much higher sales than expected.

The processor, similar to Nvidia’s popular H100, helps develop AI models by bombarding them with data. Demand is high enough for the product that AMD now expects to ring up more than US$3.5 billion in sales this year, up from an earlier US$2 billion forecast.

The catch: Some on Wall Street had been predicting numbers as high as US$8 billion, according to Chris Caso, an analyst at Wolfe Research. AMD shares fell more than 6 per cent in late trading.