(Bloomberg) — Microsoft Inc., Alphabet Inc.’s Google Inc. and Advanced Micro Devices Inc. are working harder than most to incorporate artificial intelligence into their products, but investors are not seeing interest in the technology. I realize that it is difficult to meet expectations.
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The company’s stock fell in New York trading on Wednesday, a day after the tech giant announced its financial results for the final three months of 2023 and its outlook for the current quarter. Microsoft fell 1.6%. Google fell by up to 6.7%, and AMD fell by 5.5%.
All three were at pains to highlight advances in AI. In AMD’s case, the company predicted that its new AI processors would generate even higher-than-expected sales. Microsoft touted how users are embracing its AI assistant, and Google said the technology is improving its search and cloud computing services.
But investors have been buying up the stocks of both companies to record highs in recent weeks, betting that AI’s massive success will quickly accelerate their performance. What they heard Tuesday wasn’t enough to meet those expectations.
“Companies need to continually prove themselves and continually prove the value proposition of AI,” Katrina Dudley, portfolio manager and analyst at Franklin Templeton, told Bloomberg TV. .
Microsoft and Google, two rivals in AI software and cloud computing, delivered mostly good news in their reports, but still drew frustration from investors.
At Microsoft, revenue grew at the fastest pace since 2022, driven in part by AI products that helped drive adoption of data center services. Revenue from the Azure Cloud Services segment increased by 30%.
Chief Financial Officer Amy Hood said AI demand boosted its growth rate by 6 percentage points. That’s up from 3 percentage points in the previous quarter, an acceleration that UBS Group AG analyst Karl Keilstedt called “absolutely staggering” on a conference call with company executives. Microsoft did not say how much it expects AI to power Azure this quarter.
CFRA Research analyst Angelo Gino said that despite the momentum, Wall Street wanted more clarity about how much AI would contribute to future financial performance. “Investors want to quantify the potential of AI over the next few years,” he says.
But Microsoft has no intention of following the same pattern as Nvidia, the AI processor maker whose sales have exploded.
“In terms of contributing AI to Microsoft, this is not how it works,” Zino said. “This is going to be a slower process than perhaps some people expected.”
‘Much faster’
In November, Microsoft released 365 Copilot, an AI assistant for Office programs such as Outlook, Word, PowerPoint, and Teams. The company did not provide subscription details for the product, but CEO Satya Nadella said on a conference call that adoption was “much faster” compared to previous versions of the software. Stated.
At Google, a slump in its core search advertising business has raised concerns. But the company’s quarterly report also raised questions about whether the company is being aggressive enough in the AI space and the risk of falling behind Microsoft.
Insider Intelligence analyst Evelyn Mitchell Wolf said a slowdown in the company’s advertising business, its main source of revenue, could also threaten its AI ambitions.
“Google ads make up the majority of our revenue,” she said. “Experiencing dollar-for-dollar volatility does not bode well as we prepare to move forward in earnest with all our carefully crafted plans for AI.”
Concerns about the online advertising market also weighed on the shares of Meta Platforms Inc. and Snap Inc., which rely heavily on that revenue stream. Meta stock fell as much as 3.2% and Snap fell as much as 3.6%.
AMD’s new chip
AMD stock has been one of the favorite stocks for investors looking for a way to bet on AI computing. The company’s stock is the second-best performing stock on the Philadelphia Stock Exchange Semiconductor Index this year, following a similar performance in 2023.
This meant that AMD had a high hurdle to clear in its quarterly report.
It also didn’t help that the company’s revenue estimates for the current quarter were lower than most expectations. However, the company said its highly anticipated MI300 AI accelerator chip is selling much better than expected.
This processor, similar to Nvidia’s popular H100, helps develop AI models by sending large amounts of data. Demand for the product is strong enough that AMD now expects sales to exceed $3.5 billion this year, up from an earlier estimate of $2 billion.
The pitfalls: Some on Wall Street were predicting numbers as high as $8 billion, said Chris Caso, an analyst at Wolfe Research.
–With assistance from Davey Alba, Julia Love, and Dina Bass.
(Updates transactions starting in second paragraph.)
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