The AI trade's trick-or-treat earnings season
Summary
Recent earnings from major cloud and technology companies showed both strong demand for AI services and risks to established businesses and profits. Tech stocks came under pressure, while companies continued to invest heavily in AI infrastructure.Key Facts
- The Nasdaq briefly fell 10% from its previous peak, entering correction territory, and lost $1.2 trillion in value during October.
- Google reported rising search queries, but AI-powered search results have lower margins and may reduce revenue from its core search advertising business.
- Google Cloud is narrowing the revenue gap with Microsoft Azure, with demand for Google’s TPU chips contributing to growth.
- Microsoft and Amazon reported strong cloud growth, though investors wanted faster growth from Amazon.
- Amazon’s net income fell partly because it did not repeat a prior-year pretax gain from its investment in Anthropic.
- Microsoft’s investment in OpenAI slightly increased its net income.
- Some technology companies have turned free cash flow negative as they spend on AI infrastructure.
- Cisco executive Jeetu Patel identified a major cyber event that weakens demand for AI as a potential risk.
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