AI-driven Growth Fuels Microsoft, Alphabet’s Q1 Earnings

Alphabet and Microsoft spearheaded a robust rally in technology stocks on Friday after reporting earnings that surpassed expectations, thanks in large part to their aggressive investments in artificial intelligence (AI). 

The growth in tech shares helped alleviate investor concerns that had been sparked by a weaker forecast from Meta Platforms earlier in the week.

Alphabet, known for its dominant search engine Google, saw its market value soar past the USD 2 trillion mark after its shares grew by 10 per cent, adding approximately USD 180 billion in market capitalisation. The company further sweetened the deal for investors by announcing its first-ever dividend alongside a substantial USD 70 billion stock buyback plan. Alphabet had flirted with the USD 2 trillion milestone on an intraday basis more than three years ago but had never closed above that level until now.

Microsoft also saw significant gains, with its stock price rising nearly 3 per cent, which translated to an increase of more than USD 80 billion in its market value. The company reported that AI services contributed seven percentage points to the 31 per cent revenue increase in its Azure cloud-computing platform during the January to March quarter. 

Amy Hood, Microsoft’s finance chief, noted that AI demand currently exceeds the company's capacity, highlighting the need for continued investment in infrastructure to support growth.

The optimism generated by Alphabet and Microsoft contrasted sharply with the downturn experienced by Meta Platforms, whose stock plummeted by 10 per cent following its announcement of higher spending and softer growth expectations. This divergence underscored the significant impact and potential of AI investments made by the leading tech firms.

Other tech and AI-related stocks, including Amazon, which is set to report earnings next Tuesday, and AI chip makers such as Nvidia, Broadcom and Marvell Technology, also benefited, showing moderate gains. This collective uptick is riding on the back of expectations that ongoing heavy investment by major tech firms will continue to drive demand for AI technologies and infrastructure.

Analysts have reacted positively to the earnings reports, with many increasing their price targets for Alphabet and Microsoft. This reflects a broader market sentiment that the substantial capital expenditures on AI by these companies are not merely cost centers but pivotal investments poised to yield significant returns.