In Friday's notable gains, tech giants Alphabet and Microsoft led the stock market rally, showing solid returns from heavy investments in artificial intelligence (AI). The impressive performance allayed concerns that the huge investment would take time to pay off, especially given the tepid outlook for Metaplatforms.
Alphabet soared 10%, marking a historic milestone as its stock market valuation exceeded $2 trillion for the first time, according to data from the London Stock Exchange Group (LSEG). The surge was accompanied by generous offers to investors, including an initial dividend and the announcement of a massive $70 billion share buyback program.
Microsoft, on the other hand, posted a nearly 2% increase, increasing its market cap to a staggering $54 billion.
Both tech giants reported stronger-than-expected quarterly revenue growth after pumping billions into AI infrastructure. This can be attributed to the increased adoption of services such as Copilot AI assistant and Gemini chatbot.
Amy Hood, Microsoft's head of finance, said AI services contributed significantly to the 31% increase in revenue for the company's Azure cloud computing platform from January to March, accounting for 7 percentage points of growth. It was revealed that it was occupied. However, he noted that immediate demand for AI exceeded the company's capabilities, hampering growth in the quarter and highlighting the need for further infrastructure expansion.
Similarly, Google saw a 28% increase in cloud revenue due to strong growth in Google Workspace, which provides a suite of AI capabilities powered by Gemini, an expansive language model.
These impressive results were in stark contrast to Mehta's alarm that the company's stock price plummeted 10% on Thursday due to higher spending and a weaker-than-expected growth rate.
The market reaction was not limited to Alphabet and Microsoft, with Amazon.com shares rising 3.4% ahead of its earnings report scheduled for Tuesday.
In terms of capital expenditures, Microsoft's capital expenditures increased $300 million from the previous quarter to $11.5 billion, while Alphabet's capital expenditures jumped 91% year over year to $12 billion.
Analysts were quick to react, with at least 28 raising their price targets for Alphabet, with the median estimate now at $190, up from the previous closing price of $156. Microsoft saw a similar trend, with at least 25 analysts raising their price targets, setting the median price at $475.
With Microsoft's 12-month forward P/E ratio of 30.40x, compared to Alphabet's 21.63x, some analysts have cited the former's for good reason amid the AI-driven evolution of the tech sector. Defended premium valuation.
