After Microsoft and Google’s parent company, Alphabet, reported better-than-expected results yesterday, analysts say the race to dominate the burgeoning AI field is moving quickly.
Alphabet’s robust performance saw a 3.3 per cent surge in ad revenue, as search revenue hit $42.63bn (£32.98bn), causing shares to climb six per cent on Wednesday.
Despite the market applause, leading media analyst Ian Whittaker said the company lacks substantial “hard detail” on its AI plans which, he believes, are “a lot of talk”.
He explained: “My analogy would be a car manufacturer designing a new engine – you need to do it, the cost of development will be priced in the overall cost but it is hard to pin down what level of money you actually make from it.”
Alphabet’s chief financial officer, Ruth Porat, said AI will be the “primary driver” of increased investment in data centre capacity, GPUs and TPU accelerator chips.
Google’s AI-powered chatbot Bard flopped on its initial launch earlier this year, although the search engine has since improved the model, apparently increasing its accuracy by 30 per cent.
However, Quilter Cheviot’s equity research analyst, Ben Barringer, said Alphabet has potential to be “the most AI-centric business out there,” with a three-pronged strategy that “appears to be paying off” amidst a digital advertising upswing.
Alphabet’s cloud business is gaining market share from budding AI startups, bolstering its position in the AI realm and “reasserting itself as a winner”, Barringer added.
Microsoft cracks on with Copilot
Microsoft also fared well in their fourth quarterly earnings on Tuesday evening with Office 365 sales up 11 per cent.
Its Azure cloud business disappointed investors, with growth sliding to 27 per cent down from 31 per cent in the previous quarter, resulting in a drop of over four per cent in shares in after-hours trading on Tuesday.
The software designer also lowered their guidance for Azure in the next quarter to 25-26 per cent.
“Bing is not yet seeing a large surge of users despite the capabilities of Chat-GPT, and this will be one to keep an eye on going forward, especially as the likes of Google match those services,” Barringer said.
He acknowledged the potential of their AI powered ‘Copilot’ assistant product, saying “we are yet to see the full effects”.
Microsoft’s Copilot, designed to appeal to businesses looking to amp up their productivity levels, was launched last week and costs $30 per month.
Amy Hood, Microsoft’s finance chief, said on Tuesday that growth from AI services will be “gradual” as the popularity of the tools increases.
Rating Microsoft a ‘Buy’, analysts at American investment firm Stifel wrote it will take “some additional time” for revenue to materialise, but the tech giant is “well positioned” with its “unique” AI services.
It comes as Microsoft’s deal with gaming company Activision Blizzard is still ongoing – with a new deadline set for October.