The US big tech companies once again demonstrated their strong momentum in the first quarter, with the Google parent company, Alphabet, and its rival Microsoft, both surpassing market expectations in their quarterly earnings reports. Alphabet's stocks surged by more than 10%, and Microsoft's shares rose nearly 5% in after-hours trading. The two tech giants are widely seen as the main flag bearers for artificial intelligence (AI), thus providing optimism to the sector. Below are the details of their earnings results and the performance of their respective core businesses in the first quarter.
Alphabet sees acceleration in advertising sales
Alphabet, the parent company of Google, demonstrated robust growth in its core business of advertising sales, propelled by an improved macroeconomic environment and heavy investments in AI technology. Its Google advertising revenue accelerated by 13% year on year to $61.66 billion (€57.4 billion), which accounts for 77% of the overall revenue. The company’s total revenue increased by 15% from a year ago, the fastest quarterly growth in two years.
Alphabet reported earnings per share of $1.89 on revenue of $80.54, topping the estimated $1.51 and $78.59 respectively. The two bottom line segments, YouTube advertising, and Google Cloud revenue recorded $8.09 billion and $9.57 billion, beating market expectations of $7.72 billion and $9.35 billion, respectively. The Google Cloud revenue jumped 28% from the same quarter last year.
Investors cheered for Google Cloud’s acceleration as the division generated operating income of $900 million, a substantial increase from $191 million a year ago. Google Cloud holds the third position in market share, trailing behind Amazon's AWS and Microsoft's Azure, Chief Financial Officer Ruth Porat expressed enthusiasm, stating, “The main thing is, we are really excited about the benefit from AI for our cloud customers.” Google invested $12 billion in AI infrastructure, primarily focused on data centres, during the first quarter. CEO Sundar Pichai conveyed confidence in effectively managing the transition to monetisation following these substantial investments.
Another catalyst contributing to the surge in Alphabet's stock is the announcement of its inaugural cash dividend of 20 cents per share and a $80 billion share buyback plan.
Microsoft's intelligent cloud division resurges, propelled by Azure's AI integration
In the third quarter of fiscal year 2024, Microsoft's core business, the Intelligent Cloud, experienced a notable resurgence. The segment's revenue surged by 21% to reach $26.71 billion (€24.9 billion), primarily buoyed by Azure's 31% year-on-year growth. This significant growth indicates that the company's strategic adoption of AI is yielding substantial returns. Notably, Azure's growth had previously dipped below 30% since the third quarter of fiscal year 2023. However, Microsoft anticipates Azure's growth to maintain a steady pace, projecting it to range between 30% and 31% for the current quarter. Analysts had anticipated a 29% increase in Azure's revenue for both the last quarter and the current one.
Microsoft's remarkable progress in AI has propelled it to surpass Apple, claiming the title of the world's largest market cap company. The company's overall revenue exceeded expectations, with earnings per share reaching $2.94 on revenue of $61.86 billion, surpassing market forecasts of $2.82 and $60.80 billion, respectively. In addition to the Intelligent Cloud division, both of Microsoft's other segments have seen expansion. Revenue in productivity and business processes, which includes Office software, LinkedIn, and Dynamics 365, grew by 12% year-on-year to $19.6 billion. Meanwhile, revenue in More Personal Computing increased by 17% year-on-year to $15.6 billion. Revenue in More Personal Computing was up 17% year on year to $15.6 billion. Notably, its Xbox revenue surged by 62%, driven primarily by 61 points of net impact from the Activision acquisition.
This diversification and robust growth across its divisions underscore Microsoft's strong position in the market and its effective utilisation of AI advancements. In the earnings conference call, CEO Satya Nadella highlighted Azure's market share gains, noting that it has been capturing market share from competitors. He specifically mentioned that approximately 60% of Fortune 500 companies are utilising Copilot.
Snap and Intel move divergently amid earnings results
Snap and Intel have also released their first-quarter earnings, with divergent outcomes. Snap's shares soared by more than 20% following an earnings beat and a promising outlook. In contrast, Intel's stocks plummeted nearly 8% due to revenue falling short of expectations and weaker-than-anticipated forecasts for the current quarter.
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