Big tech in the summer blues: AI euphoria fizzles out after Q2 results

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For a year and a half, the shares of the technology giants only knew one direction: steeply upwards. Until the end of June, the shares of the most valuable American technology companies known as the "Magnificent 7", except Tesla, were constantly setting new highs. Recently, however, share prices have started to slide - in some cases massively. AI darling Nvidia, for example, has lost 27% of its value in the past four weeks at its peak.

The other big tech companies have also seen some significant losses during this period. The reason: quarterly results that lacked the wow effect. Alphabet led the way last week with convincing figures. Turnover climbed by 14% to 84.7 billion dollars, while the US group's net profit even increased by 28.5% to 23.62 billion - both metrics were above consensus estimates. However: The share price fell by 5 percent as a reflex.

Alphabet, Microsoft and Amazon sold off after balance sheets

Microsoft fared little better on Tuesday, reporting a total turnover of 64.7 billion US dollars in the three months from April to June – 15 percent more than in the same period last year – and a net profit of 22 billion dollars (+10 percent). Here, too, shares initially slumped by 7 percent in after-hours trading before recovering the next day.

Amazon, on the other hand, allowed itself a rare sales miss yesterday after the close of trading: although the revenues of the fifth most valuable tech company in the world rose by 10 percent, they were just below Wall Street's expectations of 148.56 billion dollars. Meanwhile, net profit more than doubled to 13.5 billion dollars. Although Amazon's much-noticed cloud division AWS grew by a further 19 percent in the second quarter, exceeding analysts' estimates, the shares were sold off hard in after-hours trading, falling by 7 percent. Another reason for this was that the revenue outlook for the current quarter was also below Wall Street expectations, with a range of between 154 and 158.5 billion dollars.

Meta and Apple balance sheets received positively

On the other hand, the world's most valuable company, which has been back in business for a few weeks now, managed to produce some positive surprises yesterday when it presented its balance sheet: Apple was able to beat consensus estimates for both revenue and profit. After several quarters of stagnating or even declining business results, the iPhone manufacturer could increase revenue by 5 percent to 85.77 billion dollars and net profit by 8 percent to 19.88 billion dollars in the second calendar quarter. Both figures were above analysts' expectations. Despite this, Apple shares remained virtually unchanged in after-hours trading.

By contrast, Meta provided the only positive exclamation mark among the Big Techs on Wednesday. The Zuckerberg group almost easily exceeded Wall Street's expectations in terms of turnover and profit: Meta reported revenues of 39.07 billion dollars between the beginning of April and the end of June - an increase of 22 percent compared to 32 billion dollars in the same period last year. Meanwhile, net profit rose by an enormous 73 percent to 13.47 billion dollars, or 5.16 dollars per share. The Q2 balance sheet marks the fourth consecutive quarter of sales growth of over 20 percent. Except for Nvidia, which only presents its latest figures at the end of August, no other Mag-7 member is growing this fast. Nevertheless, the shares only rose by 5 percent in response to the very strong balance sheet.

Disappointed AI hopes

How can the sometimes harsh sell-off of the technology champions be explained? In part due to disappointed growth hopes in the booming artificial intelligence (AI) segment. Alphabet CEO Sundar Pichai explained in the conference call following the publication of the quarterly results that the AI initiatives had already driven "new growth". "Year-to-date, our AI infrastructure and generative AI solutions for cloud customers have already generated billions in revenue and are being used by more than two million developers," explained Pichai. However: The expansion of the new AI infrastructure is initially devouring huge sums of money. Alphabet reported around 13.2 billion dollars for investments in the second quarter, which corresponds to an increase of 91 percent compared to 6.9 billion dollars in the previous year, as the US search engine pioneer continues to expand its AI investments massively.

However, after a year and a half of AI hype, investors and analysts seem to be asking themselves how soon the massive investments can actually be monetized. "How much revenue are they generating from this?" asked Daniel Morgan, Senior Portfolio Manager at asset manager Synovus Trust, for example. "When I look at the (Q2) report, I see that Google is still there. They make their money from advertising and search engines", Morgan explained to the financial information service Bloomberg.

Investors expect faster AI monetization from Google and Microsoft

Microsoft was also criticized for its monetary AI progress after its latest results. The focus here is on the Azure cloud division, which corporate customers use for their AI initiatives. Wall Street had expected year-on-year growth of 30.2 percent here, but Microsoft CEO Satya Nadella was only able to report growth of 29 percent. Considering the overwhelming AI hype, which has led to massive increases in value on the stock market over the past year and a half, investors are currently spooked by even a marginal slowdown. Accordingly, Piper Sandler analyst Brent Bracelin called the slower growth of the Azure division "a somewhat confusing thing for investors". However, Bracelin expects the cloud segment to accelerate again next year.

Apple has also recently increased its spending in the AI sector, as CEO Tim Cook emphasized following the latest results. "Our results this quarter include an increase in the amount we are spending on AI and Apple Intelligence compared to last year," Cook told the financial information service CNBC on Thursday. However, the real test is yet to come for Apple, which has so far held back in the race to use generative AI: In September, the company will present its own artificial intelligence system, Apple Intelligence, which is integrated into the next iPhone.

(emw)