1/31/2024

Alphabet earnings disappoint investors

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Key points:

  • Alphabet disappointed investors with its fourth-quarter 2023 results.
  • The holding also announced an increase in capital expenditures, which will be aimed at the development of artificial intelligence.
  • The company’s shares fell 6% in after-hours trading.

Alphabet‘s disappointing holiday ad sales and increased spending on artificial intelligence dampened investor enthusiasm, sending its shares down 6% after the market close.

The company’s fourth-quarter profit of $20.7 billion was overshadowed by slower-than-expected ad revenue growth. While retail sales provided a glimmer of hope, total advertising revenue came in at $65.5 billion, falling short of analysts’ projections of $66.1 billion.

Alphabet’s struggles in the advertising segment highlight the fierce competition it faces from other online platforms vying for a slice of the booming digital advertising market. Facebook, Instagram, TikTok, and Amazon.com are all aggressively expanding their advertising offerings, making it increasingly difficult for Alphabet to maintain its dominance.

Experts attributed Alphabet’s underwhelming results to rising uncertainty among corporations worldwide about the timing and extent of interest rate cuts by global central banks.

The AI race is getting fiercer

Google is facing intense competition in the artificial intelligence arena from two major players: OpenAI, the creator of ChatGPT, and its sponsor, Microsoft. While Google Cloud exceeded Wall Street’s revenue expectations and resumed growth with the support of AI, Microsoft Azure’s growth outpaced Google Cloud’s during the same period.

To deliver cutting-edge AI capabilities, Alphabet has made significant investments in servers, data centers, and research, with its capital expenditure skyrocketing to $11 billion in 2023, its highest level in years. Capital spending is expected to be even higher in 2024.

Late last year, Google unveiled Gemini, a powerful set of AI models for its Bard AI assistant, challenging ChatGPT’s dominance. The company also made a strategic investment of up to $2 billion in Anthropic, a renowned artificial intelligence startup that has been gaining traction among larger cloud competitors like Microsoft and Amazon.

Investors expect more from tech companies

Investors lost confidence in artificial intelligence stocks after Microsoft, Alphabet, and Advanced Micro Devices reported disappointing quarterly results, leading to a collective loss of $190 billion in market capitalization. The recent optimism surrounding AI had driven Microsoft’s stock market value past $3 trillion in January, surpassing Apple.

Nvidia shares, which rose 27% in January on AI optimism, also fell more than 2%.

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