Microsoft Result Puts AI in Spotlight, Creates Worry for Big Tech

A number of US big tech companies fell connected Wednesday arsenic Microsoft's results signaled really nan high-stakes conflict for AI supremacy will costs nan tech giants that person seen their shares rally successful caller months connected hype astir nan technology.

Microsoft's shares fell 3.6 percent successful early trading arsenic nan institution laid retired an fierce AI-related spending plan, saying deeper investments successful AI are required earlier gains trickle to nan bottommost line.

Microsoft is group to shed astir $100 cardinal (nearly Rs. 8,20,100 crore) from its marketplace capitalization if nan loses clasp until adjacent of trading. Its shares had gained 46.4 percent up to yesterday's close.

"AI will make a batch of gross and net for specified firms, but a batch of investors person been buying nan rumor and now that we person earnings, they are taking profits," Paul Nolte, elder wealthiness advisor and marketplace strategist for Murphy & Sylvest said.

"There's still a batch of excitement astir AI, but cipher rather understands what that intends for nan bottommost statement of galore of these companies."

The NYSE FANG+ index, which houses galore megacap maturation names, was down 0.2 percent. The scale has risen astir 76 percent truthful acold this year, driven by nan frenzy astir AI.

Google-parent Alphabet was an outlier. Its shares roseate 5.6 percent aft nan institution hit expectations for second-quarter results. Alphabet looks group to adhd astir $100 cardinal to its marketplace capitalization.

The caller rally has driven up Microsoft's valuation. The banal is trading astatine 31 times 12-month guardant earnings, compared to a PE aggregate of 20 for Alphabet.

"The tech net play has started connected a mixed note," said Mark Haefele, world wealthiness guidance main finance serviceman astatine UBS successful a customer note.

"The reside group by quarterly results complete nan adjacent week will beryllium important to nan capacity of tech stocks done nan remainder of nan 3rd quarter."

Apple, nan world's astir valuable publically listed company, and Amazon.com are group to study quarterly net adjacent week. 

Fed fears vs AI boost 

Investors besides remained cautious connected Wednesday, pinch Wall Street's main indexes muted up of a apt Federal Reserve liking complaint hike later successful nan time that could push borrowing costs to their highest since nan world financial crisis.

Large tech companies, which trust heavy connected borrowed money, person been pressured since nan Fed started its tightening rhythm to tame inflation.

However, optimism complete AI and hopes that nan Fed is nearing nan extremity of its complaint hiking rhythm person supported tech stocks successful caller months.

Stuart Cole, main macro economist astatine Equiti Capital, said tech stocks thin to beryllium reasonably exposed to specified sentiment astir cardinal slope argumentation arsenic galore of them are reliant connected robust economical maturation to present nan returns they promise.

"There are valid concerns that nan US system is weakening, but until nan Fed sees sustained grounds of softening inflationary pressures, nan hawkish stance will beryllium maintained, moreover astatine nan consequence of tipping nan system into antagonistic growth."

Meta Platforms' shares roseate 1.0 percent aft Alibaba's unreality computing section said it has go nan first Chinese endeavor to support nan company's open-source artificial intelligence (AI) exemplary Llama.

Amazon shares dropped 1.3 percent aft a media study said nan Federal Trade Commission is finalizing an antitrust suit against Amazon.

Snap Inc shares tumbled 18.3 percent aft nan photograph messaging app-owner reported a weaker third-quarter forecast than analysts had expected connected Tuesday.

"Band-Aids not fixing slug holes yet," wrote Bernstein banal analyst, Mark Shmulik. 

The company's Snapchat app has added a caller AI-powered chatbot that tin reply questions to pull much users, but Shmulik notes nan institution has struggled to consistently turn gross and drawback up to rivals for illustration Facebook-owner Meta. 

"Snapchat is moving to enactment successful nan aforesaid spot while peers enviously get backmost connected nan advertisement maturation track," Shmulik said.

© Thomson Reuters 2023 

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