Why did Meta plummet while Microsoft and Google surged, all "gambling" on AI?

AI has undoubtedly become a key part of the new strategic layout for tech giants. However, the first-quarter financial reports prove that although they are all burning money in the AI field, the current impact on company performance is completely different.

The first-quarter performance was equally strong, with Google's parent company Alphabet and Microsoft seeing a significant increase in stock prices in after-hours trading. The former saw its stock price surge over 15% to a new high in Thursday's after-hours trading, while the stock price of Meta, the parent company of Facebook, suffered heavy losses, dropping more than 10% overnight.

The key to this difference lies in the fact that at this stage, AI investments have already begun to bring huge benefits to Google and Microsoft, but for Meta's performance, it is more like a heavy burden, with a long way to go on the road to monetizing AI.

In the just-concluded conference call, both Google and Microsoft confirmed the positive impact of AI on their performance.

AI drives Google Cloud revenue to grow by 28% year-on-year, Google says it will strive to control cost growth

The financial report shows that Alphabet, Google's parent company, had a total revenue of $80.54 billion in the first quarter, a 15% year-on-year increase, the fastest growth since early 2022, and higher than the market's expected $79.04 billion. Adjusted earnings per share were $1.89, far exceeding the expected $1.53, and a 61.5% year-on-year increase from $1.17 in the same period last year. Net profit soared 57% year-on-year to $23.66 billion, higher than the expected $18.95 billion.

In the first quarter, Google Cloud revenue reached $9.6 billion, a 28% year-on-year increase, with Chief Financial Officer Ruth Porat attributing this to the "increasing contribution brought by AI."

Despite the huge spending on AI, Porat stated that Google is still controlling these costs. She said:

Looking ahead, we will continue to focus on slowing down the pace of spending, making room for the increase in investment in technology infrastructure and the related depreciation and expenses.

Regarding capital expenditures, our capital expenditures for this quarter were $12 billion, mainly invested in technology infrastructure, with servers being the largest expenditure, followed by data centers. Capital expenditures have seen a significant year-on-year increase in recent quarters, reflecting our confidence in the opportunities AI provides across the entire businessHowever, evaluating Google's investment and expenditure in the field of AI will become more difficult in the future, as Google has undergone organizational restructuring. Starting from the second quarter, the AI model development team that was originally part of the Google Services division will be moved to DeepMind, which is directly under Alphabet, the parent company.

In other words, starting from the second quarter, the accounting treatment of AI-related expenses will shift from Google to the Alphabet headquarters level. This will increase the difficulty of assessing Google's input and output in the field of AI, as the related expenses will be included in Alphabet as a whole, rather than just within the Google unit.

Of course, investors are still enthusiastic about Google due to the shareholder bonanza: a $70 billion buyback plan + historic first dividend.

AI-Driven Microsoft Performance Exceeds Expectations Across the Board, Are Huge Expenses Nothing to Fear?

Driven by AI, Microsoft's key financial indicators and various businesses have exceeded expectations for the quarter, with overall Microsoft cloud revenue increasing by 23% year-on-year to $35.1 billion, intelligent cloud revenue increasing by 21% to $26.7 billion, and Azure revenue accelerating quarter by quarter.

It is worth mentioning that Azure and other cloud services revenue grew by 31%, surpassing the market's expected growth of 28.6%, as well as the growth rates of 29% in the third quarter of last year and 30% in the fourth quarter of last year, indicating that AI is indeed driving accelerated growth in cloud revenue.

Microsoft's Executive Vice President and Chief Financial Officer, Amy Hood, told investors:

We expect capital expenditures to increase in the coming years to support the growth of cloud products and our investments in AI infrastructure and training.

During Microsoft's earnings conference call, Morgan Stanley analyst Keith Weiss raised more detailed questions about Microsoft's investments in AI and pointed out that Microsoft's capital expenditures are expected to increase by over 50% year-on-year to reach $50 billion, while rumors about investing $100 billion to build an AI supercomputer have raised concerns about the huge investment in AI:

Obviously, the investment has almost exceeded the contribution to earnings, but I hope you can explain how the management team quantifies the potential opportunities on which these investments are based, as the scale of investment has become very large.

CEO Satya Nadella responded that in terms of training, Microsoft hopes "to be able to invest the necessary capital to essentially train these large foundational models and maintain a leading position in this area."

Hood added that the most important thing is to consider how to seize the opportunity of AI affecting every business process, rather than just focusing on the quarterly impact of such large-scale expenditures.

Opportunities lie in the value we add, and I look forward to continuing to achieve this.

AI Benefits Not Fully Evident Yet, Meta Accelerating "Burn Rate"?

Compared to Google and Microsoft, Meta's performance in the first quarter is not bad, with revenue and profit both exceeding expectations, and core advertising revenue growth accelerating.

Its core advertising business revenue reached $35.64 billion, a year-on-year increase of 26.8%, accounting for approximately 98% of total revenue, a slight increase.

In addition to the catalytic effect of AI, the booming demand in e-commerce and gaming sectors is the biggest contributor, adding fuel to the fire for Meta's advertising business.

Moreover, the positive impact of the "efficiency year" is still ongoing. Last year, against the backdrop of a severe macroeconomic situation, Meta made significant staff cuts, cost reductions, and declared 2023 as the "efficiency year." Under this plan, Meta's financial performance received a significant boost throughout the year.

However, unexpectedly, at the beginning of the year, Meta significantly increased this year's spending budget, which is bound to have a huge drag on the company's financial performance.

In its first-quarter earnings report, Meta raised its capital expenditure forecast for this year from $30 billion to $37 billion to $35 billion to $40 billion, citing the need to accelerate infrastructure investments to support the AI roadmap. Meta also expects capital expenditures to continue to increase next year.

During the subsequent first-quarter conference call, Meta CEO Mark Zuckerberg stated that he believes Meta "should significantly increase investments over the next few years to build more advanced models and the world's largest AI services." He added that these expenses must "grow meaningfully" before the company can generate significant revenue from these new products.

What worries investors the most is Zuckerberg's statement that monetizing AI may take some time:

Building leading AI will also be a much larger task than adding other experiences to our applications, and this may take several years.

After Zuckerberg's statement, Meta's stock fell by nearly 20% in after-hours trading on Wednesday, and continued to decline on Thursday, closing with a drop of over 10%