Big Tech Reports Earnings - Here's Our Winner From The Week

November 1, 8:11 am

The tech titans - Amazon, Apple, Alphabet (Google), Meta, and Microsoft - unveiled their latest earnings this week, and investors were keenly watching for signs of how investments in artificial intelligence (AI) are shaping their futures. Amid a landscape where cloud computing reigns supreme and AI initiatives are beginning to bear fruit, one company, we believe, stands out from the pack: Google.

Cloud is King

Cloud computing continues to be a cornerstone for Big Tech, with Microsoft, Alphabet, and Amazon reporting significant growth in their cloud businesses, propelled by escalating demand.

Microsoft reported that revenue from its Intelligent Cloud segment, which includes Azure, soared by 20% year over year to $24.1 billion. Azure alone witnessed a 34% uptick, with 12 percentage points attributed to heightened demand for AI services. However, CFO Amy Hood tempered expectations by forecasting a slightly slower growth rate of 18% to 20% for the next quarter, citing capacity constraints.

Alphabet's Google Cloud generated $11.4 billion in revenue, marking an impressive 35% increase year over year. The company attributed this surge to "accelerated growth" in its AI segment. While Google reported stronger cloud growth percentages, Microsoft still leads in cloud market share, with both trailing behind Amazon Web Services (AWS).

Amazon's AWS continued its dominance with a 19% year-over-year revenue growth to $27.5 billion. CEO Andy Jassy expressed a particularly bullish outlook for AI within AWS, highlighting that their AI sector is "growing more than three times faster" than AWS was at a similar stage in its development.

Investment in Generative AI is Paying Off

The billions poured into generative AI by these tech behemoths are starting to yield returns.

Jassy emphasized the magnitude of the AI opportunity, stating, "It is a really unusually large, maybe once-in-a-lifetime type of opportunity." Amazon's AI initiatives, including the development tool Bedrock and the shopping assistant Rufus, are gaining significant traction.

Google CEO Sundar Pichai echoed similar sentiments, noting that AI investments are "paying off" and are key drivers of the company's quarterly growth. Google's AI Overviews now reach over 1 billion users monthly, and the company plans to expand its AI-search feature to over 100 countries. Internally, AI is boosting efficiency, with over a quarter of new code at Google being generated by AI and then reviewed by employees.

Meta is also harnessing the power of AI, with CEO Mark Zuckerberg revealing that over 1 million advertisers have used the company's generative AI tools to create more than 15 million ads in the past month. Businesses utilizing Meta's image generation are seeing a 7% increase in conversions.

The escalating need for data centers and AI infrastructure is driving up capital expenditures across the industry. Microsoft's capital expenditure reached $20 billion in the quarter ending September 30, nearly doubling from $11.2 billion the previous year. Amazon anticipates its capital expenditure to hit $75 billion this year, with plans to increase spending in 2025, primarily for AWS.

Market Reactions

The stock market's response to these earnings reports has been mixed:

Amazon's (AMZN) stock price increased by 5% post-earnings, currently trading at $198 per share, with a market cap of $2.08 trillion and a PE ratio of 42.6.

Alphabet's (GOOGL) stock surged 6% after earnings but has since cooled slightly, now trading at $172 per share. The company boasts a market cap of $2.11 trillion and a PE ratio of 22.6.

Meta (META) fell about 2% after earnings, currently trading around $568 per share, with a market cap of $1.43 trillion and a PE ratio of 26.82.

Apple (AAPL) dropped 3% post-earnings, now at $225 per share, with a market cap of $3.42 trillion and a PE ratio of 36.9.

Microsoft (MSFT) also declined by about 3%, trading at $411 per share, with a market cap of $3.05 trillion and a PE ratio of 33.9.

The Edge for Google

Analyzing the earnings and incorporating our alternative data insights, we believe that Google emerges as the winner this week. Here's why:

Fair Valuation: With a PE ratio of 22.6, Google's valuation appears more reasonable compared to its peers, suggesting potential for stock appreciation.

Robust Revenue Growth: Google's revenue was strong across the board, particularly in its cloud and AI segments, indicating healthy business momentum.

Positive Alternative Data Signals: Our data indicates an uptick in job postings, a proxy for future growth, and positive sentiment among employees. Historically, growth in these alternative indicators has shown a minor correlation with stock price appreciation.

When combined with Google's solid financial performance and strategic positioning in AI and cloud computing, these signals suggest that the company has room to grow.

Conclusion: Google Offers the Most Compelling Opportunity

While all these tech giants are winners in their own right - each making significant advancements in AI and cloud computing - Google stands out based on its valuation and growth prospects. Its lower PE ratio suggests that it is undervalued relative to its earnings, offering a potentially higher return on investment. Combined with strong revenue growth and positive alternative data signals, Google presents a compelling case for investors.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.

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