Alphabet, Amazon outpace Meta in AI during earnings bonanza

[SEATTLE] A frenzied day of earnings reports offered a glimpse at how some of the world’s biggest tech companies are doing in artificial intelligence. The upshot: Alphabet’s Google is seeing a clear payoff from its AI spending, while Meta Platforms is lagging behind.

The two companies’ results were part of a flood of financial information on Wednesday (Apr 29), when Alphabet, Meta, Amazon.com and Microsoft all delivered their numbers within the span of two minutes. The quartet of companies are the largest spenders on AI data farms, putting them at the centre of an infrastructure build-out that’s expected to cost trillions of US dollars.

A key question among investors and analysts is whether that massive spending is providing tangible results. On that front, Google was able to point to solid growth at its cloud computing unit, which recorded sales of US$20 billion last quarter. That beat the US$18.4 billion projection. The unit saw a “meaningful acceleration in growth”, driven by demand for its AI software and infrastructure, Google said.

“Our AI models have great momentum,” Alphabet CEO Sundar Pichai said during a conference call with analysts. “We are bringing helpful AI into the hands of billions of people every day through our products and platforms.”

Backlog, the measure of contracted work that has not been recorded as revenue yet, nearly doubled from the prior quarter to over US$460 billion. The period also was the strongest quarter yet for Google’s consumer AI services, including the Gemini app, Pichai said.

Alphabet shares gained 6.6 per cent in late trading following the report, outshining the other AI giants. Futures on the tech-heavy Nasdaq 100 Index climbed 0.9 per cent.

Meta had a harder time making its case to investors. Its shares tumbled more than 6 per cent after the company boosted full-year capital expenditures to as much as US$145 billion, an increase driven in part by rising component prices.

Meta is not alone in dialling up spending; Google and others also increased their targets. But Meta does not have as much to show for this massive outlay. Unlike Google, it does not sell cloud computing services, and its consumer AI app has been slower to take off.

Compared with the biggest AI peers, “Meta’s standalone app hasn’t had the amount of engagement,” Bloomberg Intelligence analyst Mandeep Singh said.

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Meta CEO Mark Zuckerberg expressed confidence in the decision to escalate spending, though his answers to analysts’ questions were vague.

Meta does not have “a very precise plan” for how each AI product will be cultivated, he said on a conference call.

“I think we have a sense of the shape of where things need to be,” Zuckerberg said, while conceding that his answers might be “unfulfilling.”

“With the potential payoff of AI leadership seemingly so high, the companies continue to make those bets, forcing investors and customers alike to assess how their interests are impacted,” Forrester Research analyst Lee Sustar said in a note.

At Amazon, revenue from its cloud division grew 28 per cent from a year earlier, marking the fastest growth rate since the second quarter of 2022. That business serves as a bellwether of its AI progress.

The company has also gotten a boost from investments in OpenAI and Anthropic PBC, the two leading AI startups. Amazon’s shares took a leg up on Wednesday after Bloomberg News reported that Anthropic was considering a fresh funding round at a valuation of more than US$900 billion.

For its part, Microsoft said cloud computing revenue would accelerate – alongside spending. The company expects sales in its Azure cloud unit to increase about 40 per cent in the current quarter and anticipates “modest acceleration” in the second half of the calendar year.

Concerns remain about the small percentage of Microsoft Office users who are paying for the company’s Copilot AI tools. The company said paid Copilot seats rose to 20 million, up five million from the previous quarter.

Investors had a muted reaction to the report, with the shares falling slightly in extended trading. In a note, Citi analyst Tyler Radke described the results as “a quarter of solid execution, versus a step change in momentum”. BLOOMBERG