Investor Sentiment Shifts Toward AI as Microsoft and Alphabet Share Prices Reflect

NNicholas October 25, 2023 7:17 AM

Recent results from Microsoft Corp. and Alphabet Inc. reveal a growing investor focus on artificial intelligence (AI). While Microsoft's shares increased due to growth in its AI-boosted cloud business, Alphabet's slower cloud growth has left investors less confident.

Microsoft's Azure growth outpaces forecasts

Microsoft's recent share price rise can be attributed to its impressive 28% constant-currency growth in its Azure cloud-computing business, outperforming the company's own predictions and those of market analysts. The strength of this performance is not just big news, but it's also a clear sign of AI's growing influence in the business world. Microsoft CEO, Satya Nadella, highlighted the role of AI, calling it a 'unique and different' factor contributing to Azure's upward trend. As AI projects take off, they're beginning to shape the future of cloud growth rates.

AI advancements drive cloud service demand

Companies are increasingly leaning on cloud services to enhance their AI offerings, which allows them to bypass the need for extensive internal development. This is a major game-changer in the industry. It's not just about providing the platform; both Azure and Google Cloud are stepping up their game by developing new software applications to cater to the ever-increasing demand for computing power. The advent of AI services like chatbots and tools for streamlining report writing is pushing this demand, and the cloud service providers are taking note.

While Microsoft is riding the wave of growth, Alphabet's Google Cloud isn't faring as well. It recently reported its slowest quarterly growth since 2019, generating $8.4 billion in revenue, falling $250 million short of consensus estimates. According to Alphabet CEO, Sundar Pichai, this slowdown is partially due to customers becoming more selective with their IT budget allocations. The tech giant is facing stiff competition in the market, and this combined with customer selectivity is translating into slower growth for their cloud business.

Alphabet is experiencing significant interest in AI, but it's yet to see this translate into a substantial boost to its financial performance. Analysts suggest that the impact of newer Generation AI workloads on its revenue may take time to materialize. Despite Google Cloud's traction with AI startups, its current influence is not enough to satisfy investors who are looking for more immediate returns from their investments.

AI narratives influence investor sentiment

The investor community, particularly on Wall Street, is increasingly looking to AI as a catalyst for robust growth rates, especially in the face of sluggish macroeconomic trends. This shift in sentiment is becoming more apparent, with companies lacking a strong AI narrative this quarter facing the risk of falling out of favor with investors. The rapidly changing landscape means that companies need to adapt quickly, with AI integration no longer a mere option, but a necessity for maintaining investor confidence and market relevance.

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