• Alphabet and Microsoft’s earnings indicate substantial growth driven by significant investments in AI.
  • Alphabet’s market value surpasses $2 trillion following its maiden dividend and a $70 billion stock buyback.
  • The positive results from big tech companies and chip stocks lift the overall technology sector.

Alphabet and Microsoft have ignited a surge in technology stocks, demonstrating robust growth fueled by substantial investments in artificial intelligence (AI). These earnings results have alleviated concerns about the profitability of their costly AI ventures, particularly following a less optimistic forecast from Meta Platforms.

A surge in technology stocks

Alphabet witnessed a remarkable 10% surge, propelling its market value to over $2 trillion for the first time. This milestone was accompanied by the announcement of its inaugural dividend and a substantial $70 billion stock buyback program. The company’s ascent to this valuation peak marks a significant achievement, with its previous flirtation with the milestone occurring over three years ago.

Meanwhile, Microsoft experienced a nearly 2% increase, adding approximately $54 billion to its market capitalisation. Both Alphabet and Microsoft have heavily invested in the infrastructure necessary to support AI applications, and these efforts have paid off handsomely, with quarterly revenue growth surpassing expectations. Notably, users are increasingly turning to AI-driven services such as the Copilot AI assistant and the Gemini chatbot, contributing to this growth.

Also read: Alphabet’s SIP launches Verrus to help data centres save energy

AI driving revenue growth

Microsoft’s finance chief Amy Hood noted that AI services constituted 7% of the 31% revenue surge at Microsoft’s Azure cloud-computing platform from January to March. She indicated that immediate AI demand slightly exceeded the company’s capacity, limiting growth for the quarter and underscoring the necessity for infrastructure expansion through increased spending.

At Google, cloud revenue saw a substantial 28% increase, buoyed by robust growth in Google Workspace. This growth underscores the effectiveness of AI features powered by Gemini, Google’s large language model.

The outcomes differed significantly from Meta‘s cautionary note on increased expenditures and weaker-than-anticipated growth, leading to a 10% decline in its stock value on Thursday.

Also read: Microsoft’s AI lead challenges Amazon’s cloud dominance

Market response and analyst perspectives

“The three hyperscalers (major cloud companies) we’ve heard from thus far all highlighted a similar message on AI capital expenditure – this is an arms race, the AI opportunity is enormous, and spending will continue to be aggressive/ahead of market expectations,” Bernstein analyst Michael Chiang said.

The positive earnings results from Alphabet and Microsoft have not only sparked a surge in their respective stock prices but have also catalysed a broader rise in technology stocks. Analysts have responded favorably to these results, with at least 28 analysts raising their price targets on Alphabet and 25 doing the same for Microsoft.

“Google Cloud showed improvement but less than the growth of Azure. Azure’s enterprise focus and their differentiated capabilities played a part and we (and the market) await Amazon Web Services results,” Bernstein analysts said.