The actions of A (GOOGL.O) fell 6%, while those of Microsoft (MSFT.O) fell 1%, dragging tech heavyweights including Apple (AAPL.O), Meta (META.O) and Amazon (AMZN.O).
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Both Microsoft and Alphabet reported generous increases in its cloud revenues in the December quarter — beating Wall Street estimates — as customers experimented with new cloud capabilities. artificial intelligence and built their own AI services.
But costs have also soared, highlighting the heavy investments these companies are making in servers, data centers and research as they compete fiercely for new customer dollars.
This undermined investor expectations fueled by the promess of AI, which has driven a record rally in stocks in recent months.
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“A high valuation means that even the slightest sign of disappointment will be seized on by investors, and the company’s guidance Microsoft for slowing revenue growth in its cloud division in the current quarter was enough to see shares decline modestly,” said Russ Mold, chief investment officer at AJ Bell.
The fall in shares of Google and Microsoft was predicted to eliminate around US$61 billion and US$27 billion in the companies' market value, respectively.
Gene Munster, managing partner at Deepwater Asset Management, said he expects more from his firm's holdings in Alphabet and Microsoft.
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“Investors want to see more contribution from AI,” he said of Alphabet. "A Microsoft It’s still in its early stages, but showing some increase in AI.”
Alphabet shares, which are up 58% in 2023, were trading at 22,26 times expected earnings, compared with a forward PE of 33,09 for the Microsoft, 22,46 for Meta, 42,60 for Amazon and 27,73 for Apple.
“The only problem here is that the Google released its earnings on the same night as Microsoft… (it is) difficult to obtain this multiplication of poeAI’s fairy wrath if the biggest cloud players are growing faster with higher revenues,” Bernstein analysts wrote in a note.
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Shares of chipmaker AMD (AMD.O), which raised its 2024 forecast for AI processors to $3,5 billion on Tuesday, fell 3%. Analysts previously expected AMD to sell $4 billion to $8 billion worth of AI chips, said Summit Insights analyst Kinngai Chan, adding that the stock's valuation is also tied to those numbers.
Alphabet's capital spending in the reported quarter rose 45% to $11 billion. Meanwhile, Chief Financial Officer Ruth Porat said spending will be notably higher this year than in 2023.
A Microsoft also reported a 69% increase in capital spending to $11,5 billion and said it expects the metric to “increase substantially” sequentially.
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“By providing a positive outlook…(the Microsoft) has given investors enough to justify the current share price, but it will need to continue to meet its growth trajectory to justify an even higher share price,” said Gil Luria, analyst at DA Davidson.
Luria hopes that the Microsoft can still increase margins by keeping its workforce generally stable and that investments will fall again next year, as Microsoft have sufficient data center capacity to meet demand.
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