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Microsoft, Google, and AMD fight to meet investors’ expectations on artificial intelligence

Microsoft, Google, and AMD fight to meet investors’ expectations on artificial intelligence announce financial results for the final quarter of 2023 and projections for the next, the companies experienced notable declines in New York, with Microsoft declining 1.6%, Google 6.7%, and AMD 5.5%

Microsoft, Google, And Amd Fight To Meet Investors' Expectations On Artificial Intelligence
Microsoft, Google, And Amd Fight To Meet Investors’ Expectations On Artificial Intelligence

All three had made an effort to highlight advances in AI. In the case of  AMD , the company predicted that its new  AI processors  will generate even more sales than expected. Microsoft  highlighted how users were adopting its  AI assistants , and  Google  said the technology was improving its search and  cloud computing services .

AMD forecast increased sales thanks to its new AI processors, while Microsoft and Google highlighted the adoption of their AI assistants and improvements in search and cloud computing services, respectively. (REUTERS/Clay McLachlan)

But investors had driven the companies’ shares to record highs in recent weeks, betting that an  AI boom  would quickly boost results. What they heard on Tuesday was not enough to satisfy those hopes.

Katrina Dudley, a portfolio manager and analyst at Franklin Templeton, said on Bloomberg Television: “Companies have to continually prove themselves and the value proposition of AI.” Microsoft and Google, two rivals in AI software and cloud computing, offered good news in their reports, but still left investors discouraged.

At Microsoft, revenue rose at the fastest pace since 2022, driven in part by AI products that helped drive adoption of its data center services. Revenue from its Azure cloud services unit rose 30%.

Microsoft reported revenue growth, the fastest since 2022, driven in part by its AI innovations that benefited its data center services. (Europa Press)

Demand for AI boosted that growth rate by 6 percentage points, said Chief Financial Officer Amy Hood. An acceleration that Karl Keirstead, an analyst at UBS Group AG, described as “extraordinary” in a call with company executives. Microsoft did not reveal how much it expected AI to boost Azure in the current period.

Despite the push, Wall Street wanted more clarity on how much AI will contribute to financial performance in the future, said CFRA Research analyst Angelo Zino. “Investors want you to quantify the potential of AI in the next two years,” he said.

But Microsoft isn’t going to follow the same pattern as Nvidia Corp, an AI processor maker that has seen sales explode. “In terms of AI contribution to Microsoft, that’s not the way this is going to work,” Zino said. “This is going to be a slower road than perhaps some might have anticipated.”

In 2023 Microsoft launched its 365 Copilot, an AI assistant for Office programs such as Outlook, Word, PowerPoint and Teams.(Microsoft)

In November last year, Microsoft launched its 365 Copilot, an AI assistant for Office programs such as Outlook, Word, PowerPoint and Teams. The company did not provide details about subscriptions to the product, but CEO Satya Nadella said on the conference call that adoption was “much faster” than with previous versions of the software.

As for Google, weakness in its core search advertising business raised concerns. But its quarterly report also raised questions about whether it is being aggressive enough on AI and risks falling behind Microsoft.

According to Insider Intelligence analyst Evelyn Mitchell-Wolf, the slowdown in its advertising business, the company’s main source of revenue, could also jeopardize its AI ambitions. “Google advertising makes up the majority of their revenue,” she says. “As you prepare to really go full steam ahead on all your carefully laid out AI plans, having that cash cow experiencing volatility does not bode well.”

After announcing the financial results for the last quarter of 2023

Microsoft, Google, And Amd Fight To Meet Investors' Expectations On Artificial Intelligence
Microsoft, Google, And Amd Fight To Meet Investors’ Expectations On Artificial Intelligence

and projections for the next, companies experienced notable declines in New York, with Microsoft declining 1.6%, Google 6.7%, and AMD 5.5%. (REUTERS/Dado Ruvic/Illustration)

Concerns about the online ad market also weighed on shares of Meta Platforms Inc. and Snap Inc., two companies that rely heavily on that source of revenue. Meta shares fell as much as 3.2%, while Snap shares fell as much as 3.6%.

AMD stock had been a favorite pick for investors looking for ways to bet on AI computing. Its stock has been the second-best performer on the Philadelphia Stock Exchange Semiconductor Index this year, following a similar performance in 2023. That meant AMD had a big hurdle to clear with its quarterly report.

It didn’t help that the chipmaker’s sales forecast for the current quarter came in below most estimates. However, the company said that its long-awaited MI300 artificial intelligence accelerator chip is generating sales much higher than expected.

Microsoft, Google, And Amd Fight To Meet Investors' Expectations On Artificial Intelligence

AMD anticipated higher-than-expected revenue from its MI300 artificial intelligence accelerator chip, although its sales forecast for the next quarter fell short of expectations. (Europa Press)

The processor, similar to Nvidia’s popular H100, helps develop AI models by bombarding them with data. The demand for this product is so high that AMD expects to bill more than $3.5 billion this year, compared to the $2 billion previously forecast.

The catch: According to Wolfe Research analyst Chris Caso, some Wall Street analysts had predicted figures of up to $8 billion.

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