At present, Wall Street is closely monitoring the investment expenditures and revenues of large technology companies in artificial intelligence, hoping to discover signs of positive returns on related investments. Among them, AI leader Microsoft will announce its fourth quarter (April June) financial report after US stock market hours on Tuesday (July 30).
According to data compiled by the media, Microsoft expects earnings per share of $2.94 and revenue of $64.5 billion for the fourth quarter. Microsoft announced earnings per share of $2.69 and revenue of $56.2 billion for the same period last year.
Analysts predict that Microsoft's cloud business revenue for the fourth quarter is expected to reach $36.8 billion, with intelligent cloud revenue including Azure accounting for $28.7 billion.
In its financial report for the previous quarter (Q3), Microsoft announced that artificial intelligence services contributed 7 percentage points to its Azure and other cloud service revenue growth.
The contribution from artificial intelligence was first reflected in the fourth quarter report of the previous fiscal year, which stated that AI contributed 1 percentage point of growth to Azure. And in the following quarters, this proportion continued to increase, with 3 percentage points in the first quarter of this fiscal year and 6 percentage points in the second quarter.
The wave of artificial intelligence has also greatly boosted the company's stock price, and so far this year, Microsoft has risen by 13%.
Strong cloud business
Wedbush analyst Dan Ives wrote in an investor report that their assessment of Microsoft for this quarter is once again strong, as they believe the wave of artificial intelligence is accelerating Azure's cloud business and can sustain this strong momentum into the coming year.
In addition, Karl Keirstead, a global research analyst at UBS, pointed out that Microsoft has been snatching more cloud market share from Google and Amazon.
In a recent report on the three major cloud computing companies (Microsoft, Google, and Amazon), Keirstead wrote, "In terms of market share changes between Amazon Web Services, Microsoft Azure, and Google Cloud, the most consistent theme in this round of surveys is that many customers and partners believe that Microsoft's early leadership in the field of artificial intelligence has led to its market share growth
In the previous week, Alphabet, the parent company of Microsoft's competitor Google, had released its financial report. Alphabet stated in its financial report that its cloud computing revenue has increased, partly due to people's interest in artificial intelligence products.
However, Google did not provide specific numbers on the impact of artificial intelligence on cloud business. Stephen Ju, an analyst at UBS Global Research, and others predict that the revenue benefits from Google's AI spending may not be realized until the first half of 2025 at the earliest.
AI capital expenditure becomes the focus
Investors not only care about how much money Microsoft has made in artificial intelligence, but also want to know how much more the company plans to spend on this technology.
Wall Street analysts have begun to question the returns that excessive investment in artificial intelligence can bring. Earlier, Allison Nathan, Senior Strategist at Goldman Sachs Global Macro Research, pointed out whether there is too much investment in artificial intelligence and too little return? Many analysts also believe that there are hardly any substantial or visible results to prove that these investments are worthwhile.
However, despite this, the risk of underinvestment may far outweigh the risk of overinvestment.
CFRA analyst Angelo Zino said that the capital expenditure ratio of tech giants is indeed increasing, but the increase in capital expenditure should not be seen as a disappointing result, as it is healthier than increasing operating expenses.
In the previous quarter, the third fiscal quarter, Microsoft reported a capital expenditure of $14 billion to continue building its artificial intelligence infrastructure.
During Alphabet's earnings conference call last week, the company's CFO stated that its capital expenditures were $13 billion, up from $12 billion in the previous quarter, and added that the vast majority of those expenditures were for artificial intelligence.
Future Trends of US Technology Stocks
Last week, due to weak financial reports from Alphabet and Tesla, two of the "Big Seven" companies in the US stock market, the stock market suffered a sharp decline.
This week, the remaining seven giants will gradually release their performance reports, causing the market to be "nervous" about it. Except for Microsoft, it is reported that Meta will release its financial reports after the US stock market on Wednesday (July 31), while Apple and Amazon will release their reports after the US stock market on Thursday (August 1).
In the past year, the 'Big Seven' have been the biggest contributors to the growth of the S&P 500 index. Nowadays, investors are starting to have more doubts about the potential valuations of the tech giants leading the rise, and the rotation of US stocks is gradually emerging. They have all withdrawn from technology stocks and started to flood into small cap stocks.
CFRA's Angelo Zino believes that although there may still be further rotation in the US stock market, the pullback in technology stocks may be temporary, which could bring a very good opportunity for "long-term investors".