The value relationships within big tech have been shaken up this week. The stock market capitalizations of the largest tech companies skyrocketed: Meta (Facebook) became worth $100 billion less this week, while Alphabet (Google) became worth $200 billion and Microsoft $70 billion more. The reshuffle came after the announcement of the first quarter results. Investors weighed the AI policies of the big tech companies and came to very different conclusions: companies that somehow help other companies with AI and immediately make money from it were rewarded by the investor. Companies that mainly invest in AI without properly indicating what they earn from it were punished – such as Meta. Meta CEO Mark Zuckerberg said he will invest nearly $40 billion this year in AI to enable more targeted advertising. It is not clear to investors whether these investments will pay off.
Microsoft and Alphabet also use artificial intelligence in their own products, but they mainly make money from it through the sale of cloud solutions to third parties. For example, OpenAI, the company behind ChatGPT, runs on Microsoft infrastructure. Running an AI model requires a lot of computing and storage power. Most start-ups and smaller tech companies do not buy those servers and specialized computing power themselves, but rent them from large tech companies such as Alphabet, Microsoft and Amazon. The latter is also an important player in the cloud with its large data centers. Meta does not play an important role in the operation of data centers. At Microsoft and Alphabet, most investments this year will also go to further expanding their data centers, rather than to the vague development of AI and virtual reality solutions, such as at Meta.
So you can compare Microsoft, Alphabet and Amazon to what the pickaxe and shovel sellers were during the gold rush. As suppliers, these parties earned the most from the American gold rush, more than was earned from mining gold itself. Nvidia, which supplies the most important chips for AI, belongs in the same row.
Games and Windows
The results of Microsoft and Alphabet were welcomed by investors, because the normal activities also performed more than adequately. For example, Microsoft’s revenue rose by a hefty 17 percent to $61.9 billion in the first quarter. Net profit rose 20 percent to $21.9 billion. The company already generates almost half of that revenue from cloud services, which grew by 21 percent. The classic activities, such as the sale of licenses for Windows software and games, also grew nicely.
At Alphabet, total revenues rose 15 percent to $80.54 billion. Net profit rose 56 percent to $23.6 billion. The cloud activities, with 9.57 billion dollars in revenue, are slightly smaller than at Microsoft. Alphabet, on the other hand, gets most of its money from advertising revenue, which is once again on the rise. These advertisements still mainly go to Google’s own search engine, which generated 46 billion dollars in revenue in three months, which is 6 billion more than in the first three months of 2023. YouTube, on the other hand, generated 8.1 billion dollars in revenue.
