Alphabet and Microsoft Lift Market, Are These Gains Here To Stay?

Alphabet and Microsoft are sending a clear message to investors: AI and Cloud Computing are two industries that are paying off.

Both companies released their earnings, and let us tell you, they did GREAT. Alphabet surged as much as 12%, pushing their valuation past $2 trillion. Microsoft rose by as much as 3.5%, which is an impressive gain for them. 

The Main Details:

Alphabet:

• New cash dividend program of $0.20 per share, the first in the company's history. 

• The board of directors also approved stock buybacks of around $70 billion. 

• Total revenue rose 16% from the same period last year.

• Earnings per share beat estimates: $1.89 vs $1.53 expected.

• Cloud revenue rose 30%, and Ad revenue rose 13%.

Microsoft:

• Total revenue rose 17%, and Profits rose 20%.

• Earnings per share: $2.94 vs. $2.82 expected.

• Microsoft’s Intelligent Cloud Segment rose 21%.

• Azure and other cloud services rose 31%.

• LinkedIn revenue rose 12%, Xbox revenue rose 62%, and PC revenue rose 18%.

Both tech titans are locked in a battle over the dominance of the AI field, but it seems as yesterday's results show that the market thinks these two companies have room to grow together.

Generative AI

2024 is the year of generative AI, and it looks as though technology that can create text, images, and videos with prompts is here to stay. Microsoft joined forces with OpenAi to challenge Google’s two-decade dominance of the internet, but Alphabet's own generative AI, Gemini, isn’t too far back. 

The space is becoming competitive, with both Alphabet and Microsoft executives saying their generative AI programs are driving more business for their cloud computing services. Corporate customers are also more open to making long-term investments in cloud infrastructure, increasing their trust in both companies.

Generative AI is giving a reason for corporations to come back and continue to use the cloud services of their company of choice. This gives the volatile tech industry some stability, with new demand and revenue coming in for both companies. 

Google’s Trailing Cloud Services 

This new intake in demand for cloud computing is a welcome turn for Google, which has long lagged behind industry veterans Amazon and Microsoft. After breaking even for the first time last year, the unit is now viewed as one of Google’s fastest-growing businesses and best bet for growth as its core search advertising unit matures. Google’s cloud operations pulled off a first-quarter profit of $900 million, well above analyst predictions of $672.4 million. 

Gemini Comeback

Google’s success with corporate clients follows some embarrassing setbacks it had in the generative AI consumer market. In February, its flagship AI model, formally known as Bard but now rebranded to Gemini, was criticized for answering prompts with historically inaccurate images, promoting the company to stop generating pictures and depictions of people with its software.

However, since that obstacle, Google has been able to turn things around with Gemini. The enterprise product has told a very different story as the professional version of Gemini comes with various controls to help ensure that the content released by the model stays consistent with their brand messaging to avoid mistakes like in Q1. Enterprise Gemini can be used to produce ads, videos, and podcasts.

Microsofts Domination

The narrative has been completely different for Google, with domination from the get-go. Generative AI has been an avenue for enterprise clients to spend more with Microsoft. The tech company has been infusing AI into the entire core product line with its technology partner OpenAI. 

The bet is starting to pay off as customers are adding Microsoft’s AI tools to help summarize documents and generate content. Alongside the addition of Copilat, Microsoft reported a 31% climb in revenue for its Azure cloud computing program, beating analysts expectations. 7% of this increase was attributed to AI which is a big deal. Microsoft’s GitHub coding platform is also gaining more traction, recording 1.8 million new customers during this period an increase from 1.3 million of last quarter. This is largely due to their AI-coding assistant powered by OpenAI’s largue language model, helping programmers streamline their code, answer any questions, and even convert code from one programming language to another. 

The company is also seeing a large intake in their AI assistance tool meant to work synonymously with their Office suite software. The new tool costs companies an extra $30 a month on top of their existing subscriptions. Corporate customers are many in number including Goldman Sachs, Ford Motors, and Ernst & Young. Microsoft estimates that roughly 60% of the Fortune 500 uses Copilat.