A year ago, many thought that Alphabet would be one of the first companies to be destroyed by artificial intelligence. Because who should google when they can ask ChatGPT for advice? Anyone who decided back then to buy a Magnificent Seven share (Nvidia, Alphabet, Apple, Microsoft, Amazon, Meta, Tesla) would probably not have chosen that of Google’s parent company. Wrongfully. The paper has more than doubled in price in the last twelve months, putting all other technology giants in the shade. On Wednesday evening after the presentation of the quarterly figures, the market capitalization shot up to $4.25 trillion. This means Alphabet is widening the gap to Apple (3.97 trillion) and is closing in on Nvidia (5.08 trillion). What happened this year that reshuffled the cards so much?
The answer is: Google itself has set standards when it comes to artificial intelligence. It not only drives its own AI, Gemini, but also develops its own chips (TPUs), so it controls the entire AI value chain. Thanks to the TPUs, the cost of a Gemini request was reduced by 78 percent. The cloud division’s sales grew by 63 percent to over $20 billion in the first quarter, far stronger than the competition from Microsoft (40 percent) and Amazon (28 percent). Companies use Google’s Gemini platform to build their own AI agents for supply chain optimization or customer service. AI companies like Anthropic and OpenAI rent computing power for AI training and inference (application).
However, people continue to google things, only now with the help of AI. Advertising revenue rose 16 percent to $77 billion in the first quarter. Overall, quarterly sales increased by 22 percent to $109.896 billion. Operating profit rose 36 percent to $39.7 billion, net profit was higher than operating profit at $62.6 billion, as Google was able to upgrade its holdings in SpaceX and Anthropic. After the presentation of the quarterly figures, the share price shot up seven percent to a new record high.
The numbers from Amazon, the world’s largest cloud provider, weren’t initially well received. Investors worried about high AI spending. Amazon had already announced $200 billion in spending on data centers and infrastructure this year, but it would be $44 billion in the first quarter, which frightened some because analysts had expected that the company would tend to spend more later in the year. Investors were also disturbed by the collapse in free cash flow from 26 billion in the same period last year to 1.2 billion in the first quarter. The shares fell significantly.
Then investors will probably have taken a closer look at the quarterly figures again. The increase in sales from 156 billion to 182 billion dollars, the increase in net income from 17 billion to 30 billion dollars, the growth of the cloud division AWS by 28 percent and the increase of the retail business in North America by 12 percent and in the rest of the world by 19 percent, as well as a strong sales forecast for the current quarter, convinced investors that the growth of the world’s largest retailer and cloud provider is not yet over. The stock turned positive.
Microsoft shares failed to achieve this feat. In the past quarter, the company increased sales by 18 percent to $82.9 billion and earnings per share by 21 percent to $4.27 billion, both of which were above analysts’ expectations, as was the strong growth of its cloud subsidiary Azure. However, investors found the sales and margin outlook for the current quarter to be cautious. They also didn’t like the fact that demand for AI services recently exceeded capacity. While this means that Microsoft’s services are in demand, it leaves many fearing that Microsoft will now have to spend even more. The share fell slightly as a result of the figures.
Facebook parent Meta fared much worse, with its shares falling by seven percent. There are hardly any downsides to be seen in the numbers themselves. Quarterly sales rose 33 percent to $56 billion, and net profit increased 61 percent to $26.8 billion. Every day, 3.56 billion people were on one of the meta platforms (Facebook, Instagram, Whatsapp, etc.), an increase of four percent compared to the previous year. This relatively weak increase was attributed to internet blocks in Iran and, at times, also in Russia. Advertising was clicked on 19 percent more often than a year ago, with Meta being able to increase ad prices by twelve percent. Only Reality Labs (Metaverse) still consumes four billion dollars, but that is a decrease from the previous year.
What didn’t appeal to investors about these numbers? Meta has announced that it will once again significantly increase spending on its AI data centers. Among other things, they want to build a new data center in Texas. Investors fear that this could squeeze margins. And since the share price had already increased by 22 percent over the past year, they took profits.
