Quarterly results this week from Amazon (AMZN) and Google parent Alphabet (GOOG, GOOGL) provided an AI-era playbook to keep investors patiently waiting for results from massive infrastructure spending.
Alphabet stunned Wall Street on Tuesday with profits that beat analyst expectations on the top and bottom lines, helped by strong growth in its cloud business. The company achieved profit and revenue increases of 37% and 15% respectively compared to the previous year.
While investors have expressed some impatience in recent months about the tech industry’s massive investments in AI technology, Google showed that a dominant performance from its core businesses can allay those concerns.
Amazon also offered a resounding profit margin. The company posted earnings per share of $1.43 on revenue of $158.9 billion. Analysts had expected earnings per share of $1.16 on revenue of $157.29 billion. The excellent report helped offset ongoing concerns about rising capital expenditures.
Amazon CEO Andy Jassy said during an earnings call Thursday that “as the market matures over time, there will be very healthy margins here in the generative AI space.”
Amazon said it expects to spend $75 billion on capital expenditures in 2024 and Jassy said the company plans to spend “more than that” in 2025.
The e-commerce giant’s approach to selling AI releases has also been helped by claims that new revenue has already been brought in. While Amazon hasn’t released exact figures on AI-related sales, Jassy says the AI business within its cloud division has generated several billion dollars. And on Thursday, he added that the company is growing at a “triple-digit percentage” annually.
But investors haven’t given all big-spending tech companies the same leeway when it comes to exploding capital spending.
Microsoft ( MSFT ) and Meta ( META ) faced a more brutal backlash from investors this week, even as both tech giants beat Wall Street expectations on earnings and revenue. Investors sent both stocks lower after their respective reports. Wall Street pushed back after executives from both companies said they expect capital expenditures to continue rising in coming quarters.
Notably, Meta said the company expects significant capital expenditure growth next year and has upgraded its 2024 capital expenditure guidance. The unease among investors harkens back to Facebook’s previous spending spree, when Reality Labs lost more than $13 billion in 2022 and shares in the company plunged 60%. Zuckerberg has since improved the company’s financial position and its standing on Wall Street, but he has also created a fresh shake.
Microsoft’s increased AI spending also brought some tough news of its own: the company said it expects slower growth in its cloud business, highlighting the risks of dedicating major resources to AI development without seeing returns offset them .
Both Jassy and Alphabet CEO Sundar Pichai have described their spending on AI as worthwhile efforts, allaying concerns about investing in a new technology with uncertain returns. Earlier this year, Pichai sharply addressed Wall Street’s fears: “The risk of underinvestment for us here is dramatically greater than the risk of overinvestment.” According to him, spending too much on AI is a small price to pay for claiming a leading position in a future AI-dominated landscape.
Jassy made a similar argument on Thursday, describing generative AI as a “perhaps unique opportunity.”
Google and Amazon investors seem to take their word for it.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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