In the wake of reporting financial results for the final quarter of 2023 and projections for the current quarter, Microsoft Corp, Alphabet Inc’s Google, and Advanced Micro Devices Inc (AMD) are grappling with investor discontent as they find it challenging to meet soaring expectations for artificial intelligence (AI) integration into their products.
In premarket trading on Wednesday, the shares of these tech behemoths experienced a dip, reacting to the information shared in their recent reports. Microsoft witnessed a drop of up to 2.3%, Google fell as much as 5.9%, and AMD faced a decline of up to 7.3% before the markets opened in New York.
Despite all three companies emphasizing advancements in AI, particularly in the case of AMD predicting robust sales for its new AI processors, Microsoft highlighting user acceptance of its AI assistants, and Google underscoring AI improvements in its search and cloud computing services, investors seemed dissatisfied. The market had previously driven up the shares of these companies to record highs, anticipating a substantial AI-driven boost to their results, yet the latest disclosures did not align with these high expectations.
Katrina Dudley, a portfolio manager and analyst at Franklin Templeton, commented on Bloomberg Television, stating, “Companies are continually having to prove themselves and continually prove the value proposition of AI.”
While both Microsoft and Google, fierce competitors in AI software and cloud computing, delivered largely positive updates in their reports, investors remained somewhat indifferent. Microsoft saw its revenue grow at the fastest rate since 2022, driven in part by AI products contributing to the adoption of its data center services. The Azure cloud-services unit’s revenue surged by 30%, with AI demand accelerating the growth rate by 6 percentage points. However, analysts sought more clarity on the expected financial impact of AI in the upcoming period.
CFRA Research analyst Angelo Zino noted that despite the momentum, Wall Street is keen on understanding the quantifiable AI potential in the coming years. Microsoft, however, appears to take a different approach compared to Nvidia Corp, a prominent AI processor manufacturer with explosive sales growth.
“In terms of AI contribution for Microsoft, that’s not the way this is going to work,” Zino explained. “This is going to be a slower slog than maybe some might have anticipated.”
Concerns for Google arose from softness in its core search advertising business, potentially jeopardizing its AI ambitions. The quarterly report raised questions about whether Google is being assertive enough in AI and risks lagging behind Microsoft. Evelyn Mitchell-Wolf, an analyst at Insider Intelligence, highlighted that a slowdown in Google’s ad business, a primary revenue source, could pose a threat to its AI objectives.