Big Tech Earnings: AI Remains the Star, Despite Shortfalls
Executive Summary:
Big Tech's earnings season nears its end, with AI emerging as the key narrative despite mixed performances. Microsoft missed cloud revenue estimates, Meta faced slower sales growth projections, Apple fell short of iPhone revenue expectations, and Google disappointed with cloud growth. However, analysts remain optimistic, focusing on long-term AI investments.
AI Dominates the Narrative:
Despite setbacks in other sectors, AI remains the focal point for Wall Street. Microsoft's strong AI services growth, Meta's heavy AI investments, and Google's significant spending on AI infrastructure highlight the industry's commitment to this technology.
Microsoft's Cloud Stumbles, AI Shines:
Microsoft missed cloud revenue expectations, but AI services surged 157%, contributing significantly to Azure's growth. The company attributed cloud revenue shortfalls to capacity constraints and a prioritization of AI investments over non-AI cloud services. CFO Amy Hood anticipates meeting customer cloud capacity demands by fiscal 2025.
Meta's AI Focus, DeepSeek Competition:
Meta declined to provide annual guidance but emphasized AI investment growth opportunities. The company plans to spend $65 billion on AI services development, including launching its advanced AI model, Llama 4. Analysts dismiss concerns over DeepSeek's low-cost AI, believing Meta's open-source Llama AI can rival its capabilities.
Google's Cloud Revenue Lag, AI Spending:
Google parent Alphabet's stock fell after missing cloud revenue estimates. Similar to Microsoft, Google cited increased demand for cloud services above available capacity. The company plans to invest $75 billion in AI infrastructure in 2025, exceeding analyst expectations.
Apple's Lower iPhone Sales, AI Ambitions:
Apple beat earnings expectations but fell short of iPhone revenue projections. The company's Apple Intelligence AI platform missed growth targets due to its limited availability in English. Apple plans to launch the platform in additional languages, highlighting its potential to drive device upgrades.
Analysts' Outlook:
Analysts express cautious optimism about Big Tech's AI investments. They believe the initial earnings results provide reassurance and expect the AI growth story to continue. However, Nvidia's upcoming earnings report on February 26 could impact AI stock performance.