AI Remains the Biggest Buzzword of Q2 Earnings Season: Tech Leaders Call for Patience as Investors React
Artificial intelligence (AI) continues to dominate conversations during the second quarter earnings season, but this time with a dose of caution from tech leaders and mixed reactions from investors. While companies like Meta and Alphabet were upbeat about their AI investments and witnessed positive market responses, Microsoft took a more measured approach, stating that growth from its AI services will be gradual. This tempered timeline caused a decline in Microsoft’s stock.
During Microsoft’s earnings call, CFO Amy Hood emphasized that growth in their AI services will be gradual as Azure AI scales and their Copilots become widely available. She noted that the impact will be weighted towards the second half of the 2024 fiscal year. This cautious outlook prompted a drop in Microsoft’s stock by as much as 4%.
On the other hand, companies like Meta and Alphabet expressed eagerness about their AI investments and were rewarded with positive market responses. Meta’s stock rose approximately 9% in the two days following its quarterly report, while Alphabet’s stock gained 10% since the company disclosed its earnings. Jefferies senior analyst Brent Thill emphasized that AI adoption will be a slow and steady process, and products won’t be widely available until the end of the year.
Interestingly, some companies seemed less enthused about discussing their AI prospects this quarter. Uber, often considered an innovative technology company, only mentioned AI in its earnings call when prompted. CEO Dara Khosrowshahi explained that large language models like ChatGPT are more focused on text and images and not suitable for problems like pricing, matching, and routing.
Despite the cautious approach by some tech leaders, Meta’s CEO Mark Zuckerberg highlighted that AI solutions are already driving engagement on their platform and leading to increased revenues. Zuckerberg mentioned that recommended content from accounts users don’t follow, which utilizes AI to generate content, is the fastest-growing category on Facebook’s feed. Alphabet, which was previously viewed as lagging behind Microsoft in the AI battle, showed strong growth in this area, with CEO Sundar Pichai stating that generative AI offerings are expanding their total addressable market and winning new customers.
However, not all companies experienced positive market reactions despite discussing their AI prospects. Snap mentioned that more than 150 million people have used its AI chatbot, My AI, to send 10 billion messages. CFO Derek Anderson highlighted that these high volumes of conversations provide clear intent signals about products and services that their community is interested in, benefiting their ad platform and monetization potential. Nevertheless, Snap’s stock tumbled over 14% after reporting its second consecutive quarter of revenue declines. Citi managing director of internet equity research Ron Josey mentioned that Snap’s investments in AI and machine learning are pressuring gross margins, EBITDA, and free cash flow, as the expected revenues from AI haven’t yet offset the increased spending.
While AI remains a prevalent buzzword during this quarter’s earnings season, tech leaders are urging investors to exercise patience as the adoption and impact of AI services are expected to be gradual. The hype surrounding AI may be overshadowing the reality that widespread availability of AI products is still some time away. As companies continue to invest in AI infrastructure, the long-term impact on revenue growth and engagement remains an area of interest. It is clear that AI is here to stay, but the road to its full potential may take longer than initially anticipated.
