Google and Microsoft shares climb amid relief over AI revenues

Google Cloud revenue grew 28% in the first quarter, boosted by a boom in generative AI tools that rely on cloud services to deliver the technology to customers.

Google-owner Alphabet and Microsoft delivered better-than-expected earnings last night, sending their shares higher in after-hours trade, revealing investor relief that the hype surrounding AI hasn’t yet pushed the valuations of the tech giants to unsustainable levels.

Alphabet also announced its first ever dividend of 20 cents per shares, returning capital at a time when the tech giant is spending billions on data centres to catch-up with rivals on generative AI.

Shares in Alphabet surged as much as 12% in after-hours trade. Revenue was $80.5bn for the three months to the end of March, compared with analysts’ estimates of $78.6bn (€73.25bn).

Google Cloud revenue grew 28% in the first quarter, boosted by a boom in generative AI tools that rely on cloud services to deliver the technology to customers.

Google’s cloud services are attractive for venture capital-backed startups developing generative AI technologies due to its pricing and ease of integration with other tools, investors and experts have previously said.

For its part, Microsoft beat analysts’ estimates for the quarter, driven by gains from AI adoption across its cloud services and business software products.

Revenue rose 17% to $61.9bn, compared with analysts’ consensus estimate of $60.8bn. Microsoft shares rose as much as 5% in after-hours trade.

Microsoft posted revenue from the unit that houses the Azure cloud computing platform of $26.7bn, compared with analysts’ average estimate of $26.2bn.

The Copilot tool — a set of AI assistants launched in November — along with a recovery in personal computer sales has lifted Microsoft’s enterprise software and Windows businesses.

The results come after shares in Meta Platforms tumbled 10% yesterday, a day after the owner of Facebook and Instagram delivered a message that underwhelmed investors about its long path to secure returns on the huge investments entailed in AI products.

Along with Alphabet and Microsoft, Meta is another member of the so-called Magnificent 7 group of stocks that had prospered this year on the prospects that many of the Big Tech giants had much to gain from AI.

The tumble for Meta shares wiped out around $170bn (€158bn) from its stock market valuation yesterday, and suggests that investors are getting much more selective about the AI hype.

Still, Meta shares have soared 24% since the start of the year to give it a market capitalisation of almost $1.1 trillion. Alphabet shares had also risen this year to value the company at over $1.94tn.

In contrast, shares in Nvidia — which appears to be best placed to deliver the chipsets that will be required to drive the huge additional demand that AI products will put on data centres — continue to prosper.

Nvidia shares rose 2% at one stage yesterday, and have now soared 210% from a year ago, to value the company at $2tn.

Apple, whose shares have fallen since the start of year, has a stock market valuation of $2.6trn.

Meta chief executive Mark Zuckerberg said on Wednesday that costs would grow “meaningfully” over the coming years, before the company makes “much revenue” from some of its AI products.

• Additional reporting by Reuters.