As a “weather vane” for US stocks, every move by tech giants has attracted market attention.

As the current US stock earnings season comes to an end, the big seven tech giants have also handed over their “report cards” for the first quarter to the market one after another.

Looking at the specific business of each company, the share of cloud services and AI in the business of tech giants continues to rise, and it is also becoming the most critical technology highland, which can best show the “future potential” of major companies.

Overall, Nvidia, Microsoft, Google, Meta, and Amazon all performed well. Performance indicators such as revenue and net profit increased year-on-year and exceeded market expectations; Tesla's performance was poor. Both global revenue and net profit declined, and free cash flow also experienced a “crisis.”

However, the details of each company's financial reports still revealed different signals, affecting stock price trends.

Meta's revenue outlook for the second quarter fell short of market expectations. Tesla announced that it would launch cheaper models and humanoid robots, Google announced its first dividend of 0.2 US dollars in cash per share, Apple initiated a $110 billion repurchase, and Nvidia announced a 10-1 split of shares and a 150% increase in dividends.

Furthermore, AI has become a powerful revenue-generating tool for tech giants. Financial reports show that demand for generative AI tools and services is driving business growth for cloud computing leaders Microsoft, Google, and Amazon. Meta, which has no cloud business, is also benefiting from it, and AI has driven its advertising revenue to grow appreciably.

Amazon Cloud Services (AWS) revenue grew 17% to reach $25 billion. Amazon President and CEO Andy Jassey stated in the earnings report that the growth of AWS was driven by modernizing infrastructure and enhanced AI capabilities.

Microsoft's cloud business revenue exceeded $35 billion, up 23% from the previous year. Among them, revenue from Azure and other cloud services increased by 31%, and AI services contributed 7 percentage points of growth.

Influenced by the strong performance of the Google Workspace product line, cloud revenue increased by about 28% year over year to $9.57 billion. The CEO of Google said that the search, YouTube and cloud computing sectors performed strongly. With its leading position in artificial intelligence research, infrastructure, and extensive coverage of global products, Google is expected to have an advantageous position in the next wave of AI.

Nearly all of Meta's revenue (98%) comes from the digital advertising business, and AI is a key driver of growth in this business. Meta claims in its earnings report that its latest AI model, Llama 3, has been integrated into Meta AI, first launched in English-speaking countries, and is expected to expand to more languages and countries in the coming months.

The “arms race” in the AI era is heating up

As of today, the AI wave set off by tech giants has clearly divided the strategic layout and market performance of various companies, and the “Big Seven Tech Stocks” seem to have reached the point of reshuffling. Nvidia, Meta, Microsoft, and Amazon outperformed the US stock market with the rapid rise in stock prices in the first quarter, and are regarded by the market as the new “Fab Four” (The Beatles Group of Four).

For tech giants, the “race” on AI has not stopped either. According to industry statistics, the total investment of Microsoft and Amazon in global artificial intelligence-related projects and data center projects so far during the year has exceeded 40 billion US dollars.

Furthermore, this quarter, tech giants have increased their capital expenditure and raised their annual capital expenditure guidelines.

The most typical example is that Meta adds capital expenditure for the whole year to leveraged earnings reports, putting AI to the end regardless of cost. Meta raised its spending forecast for this year by up to $10 billion; in addition, Google plans to spend about $12 billion on capital every quarter.

Bernstein's latest report predicts that the total capital expenditure of the five major tech giants, including Amazon, Microsoft, Google, Meta, and Apple, will exceed 1 trillion US dollars in the next five years, the vast majority of which will be invested in AI chips and data centers.

The bank also estimates that the five tech giants mentioned above will have a combined capital expenditure of 200 billion US dollars this year alone. In the past, most of the capital expenditure of tech giants was used to invest in fixed assets such as real estate, servers, and network equipment, but with the rapid take-off of the generative AI market, tech giants' investment focus is shifting to AI-related equipment.

Analyst Bernstein said that AI has been the focus of investment in the technology industry for the past 18 months, but the scale of this investment cycle continues to set new records.

In the past, tech giants' capital expenditure accounted for about 10% of annual revenue, but Bernstein expects this share to increase to 14% or 15% in the next two years. As an example, the five giants mentioned above are expected to spend 200 billion US dollars this year. The amount will surpass the sum of the capital expenses of the remaining 90 telecom companies listed in the S&P 500 index.

What do you think of the future market?

Goldman Sachs believes that the current stock market is in the first stage of the AI-led technological boom, and its influence will continue to expand, boosting more and more industries.

The US investment agency Fundstrat Global Advisors said a few days ago that by the end of 2030, the global labor gap will reach about 80 million, which will drive a “parabolic rise” in technology stocks. He anticipates that the weight of technology stocks in the S&P 500 will increase to 50% from around 30% now.

However, UBS Group's chief US stock strategy said that the upward momentum of US tech giants is disappearing, and UBS downgraded the industry ratings of the six major US tech giants Google, Apple, Amazon, Meta, Microsoft, and Nvidia from “high allocation” to “neutral.” In his opinion,

As earnings momentum cools down, big tech companies are losing momentum, but he explained that the downgrading was not due to rising valuations or questioning artificial intelligence technology, but rather due to the severe competitive environment and cyclical pressure faced by these stocks.

Furthermore, according to market opinion, Nvidia's current dominance is not a good thing. The logic is simple. If the market expects that the AI technology revolution represented by Nvidia can drive an increase in the productivity of the entire society, then the entire US stock market should rise across the board, not fall across the board.

Editor/Somer