The market has encouraged tech giants to invest in generative AI “artificial intelligence”, a beloved technology in Silicon Valley.
But it also expects strong performance in these groups’ core businesses to support this massive spending.
Although the quarterly results of Google, Microsoft, and Amazon generally exceeded expectations, they disappointed enthusiastic investors.
Amazon is still behind Microsoft and Google in generative AI
Amazon doubled its profits in the second quarter of the year to reach $13.5 billion.
This is due to strong margins in its cloud business (remote computing).
But its revenues of $148 billion (+10%) did not meet expectations, as shown by the Wall Street stock exchange.
The online retail giant lost about 7% in electronic trading after the New York Stock Exchange closed on Thursday.
Revenues from Amazon’s cloud computing branch, Amazon Web Services (AWS), increased by 19% to reach $26.3 billion.
It achieved operating profits of $9.3 billion (a key profitability indicator), equivalent to two-thirds of the group’s total.
However, Amazon lags behind the other two giants, Microsoft and Google in generative AI, even it ranks the first globally in cloud computing.
The two companies lead the race in designing models and applications capable of producing texts, images, and other content based on a simple request in everyday language.
Cloud Computing
Amazon CEO Andy Jassy said during a conference call on Thursday that “progress (in generative AI) will not follow a linear path.”
He reiterated his “optimism” about the “huge potential” of this technology.
“We are investing a lot in various areas of artificial intelligence and will continue to do so,” he said, noting that Amazon wants to enhance new capabilities.
Cloud computing is essential in deploying generative AI programs for companies and individuals, which means massive investments in new dedicated data centers that consume large amounts of energy.
In April, Amazon warned that investments would increase beyond the $14 billion already spent in the first quarter, especially on AWS and generative AI.
Andy Jassy confirmed that this technology “already represents several billion dollars in annual revenues.”
All company heads emphasized the need to avoid falling behind in the competition.
What is the disappointing area in Microsoft ?
Sundar Pichai, in a statement last week, said that in the current context, “the risk of underinvestment is much greater than the risk of overinvestment.”
He said, “Even when we overinvest, it is in very useful infrastructure with a long lifecycle.”
However, shareholders keen to see commercial returns proportional to expenses quickly are concerned about failure.
For example, Amazon sold fewer advertising spaces than analysts expected during the past quarter.
At Microsoft, the cloud was the area that disappointed.
Quarterly sales of the Azure platform increased by 29% year-on-year, less than the expected 31%.
Google’s results were also good, except for YouTube revenues, which came in below expectations.
Meta Services Are More Attractive with Generative AI
Only Meta (Facebook, Instagram) performed well, thanks to targeted ad sales.
They have become more attractive thanks to generative AI.
The social media giant’s profits rose by 73% year-on-year, reaching $13.5 billion in the second quarter.
Debra Aho Williamson of Sonata Insights said:
“If a company shows strong results in its core businesses, its investments in artificial intelligence will be viewed more positively.
But if it shows signs of weakness, as we saw last week with YouTube, the path may seem riskier.”
Statistics issued by the Central Bank on Friday showed that the investments of banks operating in the country increased by 20.5 percent on an annual basis to reach 673.1 billion dirhams at the end of last May, compared to about 558.6 billion dirhams in May 2023, an increase… pic.twitter.com/rgdoGSdbKr
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Amazon is threatened by new platforms
Amazon’s core business, the group’s e-commerce platform, saw a 9% increase in revenues to $90 billion in North America, including $5 billion in operating profits.
The company remains widely popular, especially thanks to very fast delivery times for customers.
But it is threatened by the discount platform Temu, the global version of the two Chinese giants Pinduoduo and Shein.
CNBC indicates that the group is considering launching a new section on its platform.
This section will be dedicated to low-priced fashion and other cheap products made in China.
Allowing Chinese merchants to sell directly to American consumers.
Do you think that generative AI will change the market for real ?
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