Dive Brief:
- Big tech’s latest earnings season is off to a rocky start, with both Microsoft and Alphabet seeing their stocks fall after reporting mixed financial results.
- Microsoft’s total revenue grew to $64.7 billion during its fiscal 2024 fourth quarter, a 15% rise compared with the year-earlier period, according to results released Tuesday. The tech giant’s cloud revenue grew 30% year over year, just missing the 31% that had been forecast by the company.
- Following the mixed news, Microsoft saw its shares dip 2.8% in after-hours trading on Tuesday, according to The Wall Street Journal. Google parent Alphabet suffered a similar fate after its earnings report last week.
Dive Insight:
Wall Street has been closely watching Microsoft, Alphabet, and other big tech companies to see if their heavy investments in artificial intelligence are paying off.
Some analysts on Wednesday remained bullish despite wrinkles that have come up in the latest earnings season so far.
While Microsoft’s results “could disappoint some hoping for more, the Street this morning will be digesting a very upbeat commentary around overall AI deployments,” Wedbush Securities analysts said in a clients note, adding that the “takeaways for the broader tech sector is this AI monetization story is real.”
Microsoft’s quarterly earnings call on Tuesday revealed a 78% year-over-year spike in capital expenditures at the tech giant, driven in large part by AI investments. The company’s total capital expenditures reached $19 billion during the most recent quarter, CFO Amy Hood said during the call.
“Cloud and AI related spend represents nearly all of total capital expenditures,” she said. “Within that, roughly half is for infrastructure needs where we continue to build and lease data centers that will support monetization over the next 15 years and beyond.”
Meanwhile, Alphabet’s revenues rose to $85 billion during the most recent quarter, an increase of 14% year over year, according to results released last week. Google Cloud revenue jumped to $10.35 billion during the quarter, a 28% spike from a year earlier.
Alphabet expects to deliver operating margin expansion for the full year of fiscal 2024 compared with 2023, but the third quarter could be negatively impacted by depreciation and higher expenses, partly due to AI investments, Ruth Porat told investors during her final earnings call as the company’s CFO last week.
