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All eyes on AI to boost Big Tech’s profits

All eyes on AI to boost Big Tech’s profits

Analysts predict double-digit growth for companies like Microsoft, driven by artificial intelligence
Analysts predict double growth for companies like Microsoft, driven by artificial intelligence. Photo: Josep LAGO / AFP
Source: AFP

Over the next two weeks, the quarterly results of the major technology companies will provide insight into the bankability of artificial intelligence and whether the large investments that AI requires are sustainable in the long term.

Analysts at Wedbush Securities, one of the largest investors on Wall Street that believes in the potential of AI, expect that “growth and profits will accelerate because of the AI ​​revolution and the wave of transformation” it will bring.

The market is generally on board with this rosy AI story. Analysts are predicting double-digit growth for heavyweights Microsoft and Google, as opposed to latecomer Apple, which is expected to grow by just three percent.

The iPhone maker, which reports its results on August 1, only unveiled its new Apple Intelligence system last month and plans to roll it out gradually over the coming months, and only on the latest models.

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CFRA analyst Angelo Zino expects the impact of these new features won’t be felt until the iPhone 16 launches in September. It’ll be the first phone to feature the new AI capabilities built into every option.

However, he expects Apple’s upcoming earnings figures to show an improvement in sales in China, a negative trend since last year.

“Apple’s guidance for the current quarter is important” in assessing the company’s momentum, Zino said.

“But if there’s one that we’re maybe a little bit more concerned about, compared to the others, it’s Meta,” he said.

He pointed out that Mark Zuckerberg’s company raised its investment forecasts in April last year, as it invested a few billion more dollars in the chips, servers and data centers needed to develop generative AI.

CFRA expects Meta’s growth to slow through the end of the year. Combined with the expected increase in AI spending, that should put pressure on earnings.

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As for earnings figures from cloud giants Microsoft (July 30) and Amazon (August 1), “we expect them to continue to report very good results, in line with or better than market expectations,” Zino said.

‘Crucial’ bet

Microsoft is one of the companies best positioned to monetize generative AI, having been the first to implement it in all of its products and investing $13 billion in OpenAI, the startup backing ChatGPT.

Winning the big bet on AI is “critical” for the group, said Emarketer’s Jeremy Goldman, “but the market is willing to give them a little patience.”

The AI ​​craze has led to double-digit growth in Microsoft’s cloud computing business, but analysts say it’s hard to sustain.

“This kind of growth can’t continue forever, but the synergies between cloud and AI make it more likely that Microsoft can continue to deliver reliable cloud growth for some time to come,” Goldman said.

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According to Matt Britzman of Hargreaves Lansdown, “investors want to see that the renewed acceleration in growth in the first quarter was not a one-off” at AWS, the company’s leading cloud division.

Because AWS is a leader “in all things data, the company should be well positioned to capture much of the demand coming from the AI ​​wave,” he added.

For Alphabet, Google’s parent company, the picture “may be a little more ambiguous,” as the company will be the first to publish results on Tuesday “due to their online search activities,” Zino warned.

“The skepticism surrounding AI Overviews,” which Google introduced in mid-May, “is certainly justified,” said Evelyn Mitchell-Wolf, an analyst at Emarketer.

This new feature, which displays written text at the top of Google search results, before traditional links to sites, got off to a rocky start.

Internet users quickly reported strange or potentially dangerous answers given by the feature touted by Google executives as the future of search.

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According to data from BrightEdge, reported by Search Engine Land, the number of searches returning a result generated by AI Overviews has declined sharply in recent weeks as Google moves to ignore the feature.

However, many are concerned about the evolution of advertising on the Internet if Google continues with the Overviews model, which reduces the need to click on links. Content creators, especially the media, fear a collapse in revenues.

But according to Emarketer’s Mitchell-Wolf, “as long as Google maintains its status as the default search engine on most smartphones and major browsers, it will remain the top destination for search and the top destination for search ad spend.”

Source: AFP