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Tech giants shine in Q4 earnings fueled by AI growth

Raimond Spekking | Octaware

Big tech’s fourth-quarter earnings season delivered strong results fueled by generative artificial intelligence on Jan. 30.

Microsoft Corp. and Alphabet Inc. kicked off the earnings season on Jan. 30, beating expectations.

Microsoft showcased an 18% increase in revenue, amounting to $62 billion, a 33% increase in net income equating to $21.9 billion and a 24% increase in its cloud computing business totaling $33 billion. Google’s parent company, Alphabet, reported a 13% increase in revenue and a 52% increase in net income.

Additionally, the revenues of both tech giants’ cloud computing businesses — Microsoft Azure and Google Cloud — grew 24% each, totaling $33.7 billion and $9.2 billion, respectively. 

“It was a record quarter, driven by the continued strength of the Microsoft Cloud, which surpassed $33 billion in revenue, up 24%,” Satya Nadella, chairman and chief executive officer of Microsoft, said in the earnings call. “We’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains.”

Sundar Pichai, CEO of Google, expressed pleasure in the company’s results and was optimistic about the future of Gemini — Google’s largest AI model — and stated the model gives the company a foundation with AI development and is “only going to get better.”

Despite solid results, shares of Microsoft and Alphabet were down 7.5% and 2.7% due to increasing costs of developing and installing generative AI features.

Microsoft’s outlook disappointed investors by citing minimal to declining growth in Microsoft Azure and other cloud computing services.

“The big factor with Microsoft as it is in almost every quarter we follow is ‘what’s going to be the guidance for next quarter?’” Anurag Rana, sector head and senior equity analyst for software and IT services at Bloomberg Intelligence, said in an episode of Bloomberg Television. “I think that’s really the most important part right now because of what we are seeing after two-quarters of stabilization in cloud results. Now the question is, ‘do they pick up or not in the second fiscal half for Microsoft?’”

Apple Inc., Amazon Inc. and Meta Platforms Inc. reported their earnings on Feb. 1, beating expectations, with Amazon announcing the launch of an AI shopping assistant called Rufus and Meta delivering dividends for the first time.

Apple reported a 2.1% increase in revenue totaling $119 billion, a 13% increase in net income at $33.92 billion and a 13% decrease in sales from China equating to $20.82 billion. 

Tim Cook, CEO of Apple, noted that the company received record revenues from more than two dozen countries and confirmed that Apple is working on AI innovations for the year. However, he acknowledged China’s contraction but said he remains “very optimistic” in the long term.

Amazon reported a revenue increase of 14% to $170 billion with a 27% increase in its advertising revenue amounting to $14.65 billion. Amazon Web Services grew 13%. In comparison, Meta reported a 25% increase in revenue and a 201% increase in net income.

“This Q4 was a record-breaking Holiday shopping season and closed out a robust 2023 for Amazon,” Andy Jassy, CEO of Amazon said in the earnings report. “While we made meaningful revenue, operating income, and free cash flow progress, what we’re most pleased with is the continued invention and customer experience improvements across our businesses.” 

Mark Zuckerberg, CEO of Meta, told analysts that 2023 was Meta’s “year of efficiency” and, moving forward, the company will focus on building the “most advanced AI products and services.”

“What I actually think is the most interesting takeaway has nothing to do with any of the three companies that reported last night [Feb. 1] what Mark Zuckerberg talked about on the earnings call for Meta, the year of efficiency, the hunger that I think that has brought to Meta — the pace of innovation — that was inspiring,” Doug Clinton, Deepwater Asset Management managing partner and co-founder said on an episode of CNBC’s Squawk Box. “And I actually think that was a tell for Google. I think Google needs its own year of efficiency.”

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