Meta’s stock dropped more than 6% after hours, while Microsoft was essentially flat. Conversely, the share price of Google parent Alphabet rose almost 7% in after-hours trading.
“We are seeing strong deal momentum, doubling the number of $100 million to $1 billion deals year-on-year and signing multiple $1 billion-plus deals,” Pichai said during the company’s call with analysts following the earnings release. “In Q1, revenue from products built on our GenAI models grew nearly 800% year-over-year.”
“That’s a very technical question,” Zuckerberg responded. “The things that we’re watching are to make sure that we’re on track to building leading models and leading products. The formula for our company has always been to build experiences that can get to billions of people and focus on monetizing them once you get to scale.”
Melissa Otto, head of Visible Alpha Research at S&P Global, said components and memory chips are very expensive and given the increases in capex, companies are willing to pay higher prices.
However, Alphabet’s cloud business results were a “meaningful beat” because it indicates the business could be claiming market share from competitors.
“It implies they’re in a strong competitive position,” said Otto. “You’ve got an emerging business line that is beating expectations in a pretty competitive environment and they are really seeing, I think, that scale come into their business in a pretty compelling way.”
Microsoft CFO Amy Hood said Azure and other cloud services grew 40%. Microsoft doesn’t break out a specific dollar figure for Azure; the metric sits within its Intelligent Cloud segment, which reported $34.7 billion in revenue.
Microsoft, which also reported results on Wednesday, guided that fourth quarter capex would exceed $40 billion, and Hood said it expects to invest $190 billion in total this year. CEO Satya Nadella attributed about $25 billion of that to higher component pricing, similar to Meta.
About two thirds of the spending is going to GPUs and CPUs, meeting Azure customer demand, and powering AI tools like M365 Copilot. Hood said even with this spending, Microsoft expects to stay capacity constrained through 2026.
“We expect capex spend to increase to over $40 billion as we continue to bring more capacity online. The sequential increase includes roughly $5 billion from higher component pricing, as well as the impact from finance leases,” said Hood during her prepared remarks.
Hood compared the investments in AI to Microsoft’s cloud business, and said AI is traveling on a similar path, although the profit margins on AI products and tools are already better than cloud margins were at a similar stage.
“We’ve been talking about sort of where this AI business of ours has been in the cycle compared to even the cycle we saw with the cloud, which now seems very long ago,” said Hood. “And how margins were actually better. And they’ve remained better in our AI business versus what we saw in the cloud transition.”
