Stock prices for Alphabet and Microsoft surged after better than expected quarterly results were reported. However, Meta Platforms faced a stumble following the announcement of plans for a significant AI investment surge alongside disappointing guidance. Both Alphabet and Microsoft are experiencing growth in demand for their generative AI services, with potential for additional growth as neither company has yet achieved enough generative AI-related revenue to report it separately. Both companies are making record-high capital investments to keep up with the demand for their AI-powered chatbots.
Alphabet reported improved growth from Search, YouTube, and Cloud services in the first quarter of 2024, with revenue reaching $80.54 billion, earnings per share at $1.89, and YouTube advertising revenue at $8.09 billion. Google Cloud revenue saw a significant increase to $9.57 billion, up 26%. Alphabet’s board also approved a cash dividend of 20 cents per share to be paid to stockholders in June. Meanwhile, Microsoft’s growth in cloud services powered by Copilot contributed to better-than-expected results. The company saw revenue of $61.9 billion in the third quarter of 2024, with earnings per share at $2.94 and commercial cloud revenue reaching $35.1 billion.
Microsoft’s Copilot and Copilot stack are seen as orchestrating a new era of AI transformation, driving better business outcomes across every role and industry. While Microsoft is yet to report how much revenue its AI services are delivering, the company is hoping that Copilot will become a major contributor to new revenue in its software business. Alphabet and Microsoft are making significant capital investments in their future, with Alphabet doubling its capital expenditures to $12 billion and Microsoft spending $14 billion on data centers and infrastructure to host rising AI demand.
Analysts believe generative AI could add billions to Microsoft’s revenue, with estimates ranging from $14 billion to $40 billion from Copilot subscriptions alone. However, some users have expressed concerns about Copilot’s performance and the high costs associated with operating AI chatbots. Despite these challenges, both Alphabet and Microsoft are optimistic about monetizing AI through advertising products, cloud offerings, and subscription services. Google One, Alphabet’s subscription service, has attracted over 100 million paid subscribers with advanced generative AI capabilities powered by Gemini models.
Analysts remain bullish on both Alphabet and Microsoft, with price targets suggesting significant upside potential for both stocks. Wedbush analyst Scott Devitt raised his target price for Alphabet, citing AI as a driver of increasing growth. Microsoft’s average price target implies a 16.4% upside, indicating strong potential for the stock to outperform. If both companies can report specific revenue contributions from generative AI, their stocks could prove to be a good investment for the future. Overall, the outlook for Alphabet and Microsoft remains positive despite challenges in monetizing AI chatbots and managing capital investments for growth.
