Strong ad sales and stable enterprise spending wind beneath Big Tech earnings. As their legacy industries steadied, American technology companies are set to report their greatest quarterly revenue growth in at least a year. However, investors hoping to see a lift from artificial intelligence (AI) may be disappointed.
As consumer and business spending remained strong despite an unsteady global economy, it is anticipated that Microsoft (MSFT.O), Alphabet (GOOGL.O), Meta Platforms (META.O), and Amazon (AMZN.O) will have built on the recovery in their enterprise software and digital advertising businesses.
This year, the shares of the four companies have increased in value, with Microsoft’s share price rising by 36% and Meta’s share price rising by 157%. As a result, the benchmark S&P 500 index (.SPX) has risen.
“After a year where enterprise spend was held down by concerns about the economy, we’re heading into a year where those concerns are slowly subsiding, making for a more stable spending environment in enterprise software and advertising,” Gil Luria, senior software analyst at D.A. Davidson
Enterprise demand for legacy goods steadied, but not for cloud computing, which is Microsoft and Amazon’s backbone. The two probably hardly budged from the previous quarter’s record-low cloud growth rates.
Analysts predict that Microsoft will highlight certain successes due to its investment in OpenAI and technology integration into its products. The corporation has committed significant investment to satisfy demand for its AI solutions.
According to RBC Capital Market, Microsoft will generate over $3 billion in sales this fiscal year.
Others may experience short-term financial harm from AI investments, such as purchasing pricey Nvidia (NVDA.O) processors.
“It’s probably not going to be material to revenue until 2025 because enterprises are still figuring out their generative AI strategy,” Rishi Jaluria, an analyst with RBC, stated.
LSEG statistics predict that Microsoft will report a nearly 9% increase in first-quarter sales on Tuesday, driven by strength in its workplace productivity software segment.
However, costs are predicted to have increased by the greatest amount in a year, 8.4%.
Alphabet is anticipated to report a 10% increase in quarterly sales on the same day. It is anticipated that revenue from Google Services—which includes YouTube, Search, and the sale of apps—will have increased by 8.5%.
In the run-up to the holiday shopping season, digital ad revenues are expected to increase, which will be good for Alphabet and Meta.
Magna, a media research and investment group, increased its prediction for U.S. ad expenditure growth for calendar 2023 last month from 4.2% to 5.2%. It anticipates a 9.6% increase in digital ad sales over that time.
After announcing several AI ad solutions last month, Meta is anticipated to disclose that its quarterly revenue climbed by more than a fifth, the most in two years, and spell out its AI goals.
But while customers explore methods to reduce their infrastructure costs, it is anticipated that the rise of cloud computing for all businesses will remain modest.
Market leaders Microsoft’s Azure and Amazon Web Services most likely had quarterly growth of 12.4% and 26.2%, respectively (Azure estimates by Visible Alpha).
Google will replace them with a projected 25.7% increase, even though they will have risen slightly from their record-low growth rates in the previous quarter.
On the other hand, Amazon is anticipated to be protected by robust retail sales because of a robust labor market. The big e-commerce company is anticipated to report an increase in sales of 11.3% on Thursday.
According to a report on Wednesday by Meta, Apple will disclose its results for the Big Tech quarter next week, on November 2.
