Alphabet, Microsoft shares jump on proof of near-term AI returns

(Reuters) -Google and Microsoft rallied on Friday as the technology bellwethers showed that hefty investments into artificial intelligence could reap more immediate revenue returns, a sharp contrast to Meta Platforms’ view that AI is a long-term bet.

Microsoft’s shares advanced 3.84% in trading before the U.S. market opened after the company beat Wall Street estimates for third-quarter revenue and profit, driven by gains from the adoption of AI across its cloud services.

Google-parent Alphabet soared an even-steeper 11.5%, poised to top $2 trillion in market value, after not only beating quarterly estimates, but also rewarding investors with its first-ever dividend and a $70 billion stock buyback plan.

That sparked a 1% to 3% rise in the shares of other big tech companies, including Amazon.com, Apple, Nvidia and even Meta Platforms, whose stock price tumbled over 10% on Thursday as the social media firm signalled its costly AI bets could take years to pay off.

The tech titans have been locked in a fierce battle in the race for generative AI, which can create text, videos and photos from prompts and is seen as the next frontier in tech. Analysts though are divided over whether Alphabet or Microsoft wears the AI crown.

“Microsoft continues to put together masterpiece after masterpiece as this quarter represents its dominant position in the AI Revolution,” Wedbush analyst Daniel Ives said.

But Scott Devitt, Ives’ colleague at Wedbush said, “We think the results further validate Google’s position as a leading AI beneficiary.”

Microsoft has access to OpenAI’s coveted AI technologies, which it has been working to infuse across its product portfolio, such as in Bing, Microsoft 365 and, most importantly, the Azure cloud-computing platform.

“AI services contributed seven points of growth” to the 31% jump in revenue from Azure, Microsoft finance chief Amy Hood said.

While Goldman Sachs said Microsoft is well positioned to replicate the success of its Azure build-out playbook in its AI-laced suite, Oppenheimer predicted the company’s AI dominance would be reminiscent of a couple of decades back.

“We see it revisiting its PC-era-type dominance, but of a 1000x larger market as it is the dominant AI platform for enterprises,” analyst Timothy Horan said.

On the other hand, Alphabet CEO Sundar Pichai touted Google’s AI offerings as a boon to its market-leading service — core search results.

“Google’s Q1 ranked somewhere north of outstanding … and management appears in better control of its own AI narrative,” said RBC analyst Khadijah Gibson.

“Aside from a similarly-sized capex guide up as Meta, Google is more than weathering the GenAI concerns.”

If premarket gains hold, Alphabet, Wall Street’s fourth-most valuable company, will cross $2 trillion in market value on an intraday basis — a milestone it last hit, but failed to hold on to, three years ago, according to LSEG Datastream.

Three of the so-called ‘Big Six’ have reported quarterly results so far. Of the remaining, Amazon, now the only one that does not pay a dividend, is due to report results next week.

(Reporting by Gokul Pisharody and Siddarth S in Bengaluru and Samuel Indyk in London; Editing by Amanda Cooper and Savio D’Souza)