Alphabet and Microsoft’s quarterly results have sent their respective shares in opposite directions. Alphabet’s stock is up about 6% in morning trading, while Microsoft’s is off a little more than 3.6%.
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It’s not too useful to compare the two companies’ overall performance given their varied product lines and the different economic conditions they have to navigate. But when it comes to AI-related costs and revenues, they share enough surface area that their comments are worth comparing.
This earnings season, we’re keeping an eye out for two big indicators: AI costs and AI revenue.
We’re several quarters into the generative AI era, and we’ve seen ample enthusiasm, significant improvement in the underlying tech, and large private-market investments. Analysts and investors, however, are studying companies with fingers in the generative AI pots for signs of adoption and if it’s actually helping them increase their revenue.
However, Alphabet and Microsoft’s results clearly indicate that the costs are high if you want to stay on the leaderboard in the modern AI arena. As for the resulting revenue, it’s starting to accrete but it largely remains something to look forward to.
In fewer words: All that AI-related work at these two companies will be likely more impactful to results in the next few quarters than it has proved thus far.
Still, Microsoft and Alphabet believe strongly that companies will spend to buy their tech and that they are laying the foundation for more growth. This morning, we’re reading earnings materials and transcripts of Microsoft and Google’s earnings calls to glean tidbits and hone our perspectives. To work!
Gotta spend to earn
Let’s start with costs, since they provide a decent look at what went down this quarter.
It seems there’s been massive investment in hardware to build the data centers needed to handle AI compute workloads. Alphabet discussed its AI hardware setup during its call, saying that it provides “AI supercomputer options with Google TPUs and advanced NVIDIA GPUs, and recently launched new A3 AI supercomputers powered by NVIDIA’s H100.”
