The expected results of tech giants, in the midst of AI reconfiguration – 01/30/2024 at 08:09

The five giants of the technology sector are publishing their results this week, as they are engaged in profound transformations to accompany the revolution of generative artificial intelligence (AI).

Microsoft and Alphabet open the week on Tuesday, while Apple, Amazon, and Meta are expected on Thursday, all after the market closes (9:00 PM GMT).

“Microsoft will be the most important of all,” say analysts at Wedbush Securities, mainly because they consider the Redmond (Washington State) firm and the semiconductor manufacturer Nvidia as “the two flagships of the AI revolution.”

Since the launch of ChatGPT, the generative AI interface from OpenAI, in early November 2022, the industry has been feverish, and each earnings presentation is an opportunity to showcase progress and ambitions in artificial intelligence.

As a partner of OpenAI, of which it controls nearly half of the capital, Microsoft is now seen as the leader in the race for AI.

After scrutinizing investments made in AI, the market now expects the effect to translate into revenue.

“If there is a company that should be able to monetize AI more quickly than others, it is Microsoft,” says Angelo Zino of CFRA, mentioning, in particular, business-focused applications, including the functionality Copilot, already automating many tasks in Windows.

Wedbush Securities expects Microsoft to comment on the commercial trajectory of AI products in the next 12 to 18 months, with analysts seeing 2025 as the real turning point for the company with the four colors.

For Angelo Zino, the appetite for AI allows technology giants to escape, in their current state, fears of a slowdown in the US and global economy.

The emergence of generative AI multiplies the needs of companies in cloud computing, as they rarely have the data processing and storage capacity offered by the large providers.

“We will look at the trajectory of the cloud” for Microsoft, Amazon, and Alphabet, which together represent about two-thirds of the market, announces Angelo Zino, who particularly plans to monitor the latter because it “experienced the strongest deceleration between the second and third quarters.”

– Apple under the microscope –

Investors will also receive updates on the online advertising market, of which Alphabet, Meta, Amazon, and Microsoft captured about two-thirds in the US in 2023.

Angelo Zino points out that they should benefit from a favorable comparison effect, as the last quarter of 2022–as well as the first of 2023–was marked by a clear slowdown.

But the analyst expects a “slight deceleration” during the last three months of the year compared to the third quarter.

According to him, several digital advertising giants have “reached a ceiling in terms of growth,” even “if the rates will remain good” in the future.

With its very different model from its four rivals, Apple still stands out as a separate entity.

The Cupertino-based company will be particularly observed this season, as many observers are concerned about a slowdown in Apple’s growth. This impression is reinforced by the 2% decline in iPhone shipments to China in the fourth quarter compared to the previous year.

“The market expects stable revenues,” in a context marked by “a more difficult market for electronic devices,” says Sophie Lund-Yates of Hargreaves Lansdown, for whom Apple is also penalized by the absence of major announcements in AI.

However, Apple is the only one of the five giants that has not announced massive layoffs in the past 18 months.

Google CEO Sundar Pichai indicated last week that his company will proceed with new job cuts, but “not on the same scale” as in 2023 (12,000 jobs), while Microsoft will lay off 1,900 employees dedicated to consoles and video game software.

But according to Dan Ives of Wedbush, “the majority of important layoffs are behind us.” According to the analyst, with these workforce reduction plans, the new economy has sent “a message of caution to investors,” which has been well received.

John Blevins, a professor at Cornell University, warns, however, that the employees of “Big Tech” are already marginally paying the price for the restructuring resulting from the widespread use of generative AI.

“The use of AI will affect all industries,” he warns. “The technology sector is simply progressing faster than others.”

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