Financial reports all exceeded expectations: but Google surged, Meta plummeted, is the difference Zuck's AI monetization ability?

Google and Meta’s earnings reports both exceeded expectations, but their stock performances were vastly different. Google surged due to its cloud business demonstrating strong AI monetization capabilities; Meta, lacking cloud services and significantly increasing AI expenditures, triggered market concerns leading to a sharp decline in its stock price.

Both earnings reports beat expectations, but Google soared while Meta plummeted

Yesterday, the US stock market welcomed a week of tech giants’ earnings reports, with Google’s parent company Alphabet and Meta releasing their financial results. Both companies reported their strongest revenue growth in years and simultaneously raised their AI capital expenditure guidance for this year.

Although Alphabet and Meta’s financial figures outperformed Wall Street forecasts, investor reactions were very different.

Alphabet announced first-quarter revenue approaching $110 billion, with profits reaching $62.6 billion. Thanks to steady performance in cloud and advertising revenues, along with investor optimism about its successful AI transformation, Alphabet’s stock price surged about 7% in after-hours trading.

Image source: Google Finance Alphabet Inc. stock price soared after earnings release

Wedbush Securities analyst Dan Ives pointed out that Alphabet’s vertical integration strategy across search engines, YouTube, and its rapidly growing advertising portfolio positions the company as a leader in the AI revolution.

D.A. Davidson analysts also mentioned in their report that Google’s performance outshines its peers and that this has already been fully reflected in its current valuation.

On the other hand, Meta’s revenue for this quarter reached $56.3 billion, with profits of $26.8 billion, representing a 33% growth rate, the strongest expansion since 2021. Despite the excellent financial results, Meta’s stock still dropped about 7% in after-hours trading.

Image source: Google Finance Meta’s stock price fell sharply after earnings release

Reasons for Meta’s stock decline: high spending but weaker monetization compared to Google?

The main reason for the divergence in stock performance between the two companies lies in market perceptions of their AI investment monetization capabilities.

Foreign media CNBC and AFP pointed out that Alphabet, Microsoft, and Amazon all possess extensive cloud computing infrastructure, enabling them to directly sell AI technology to customers and convert it into revenue.

But Meta lacks such cloud services, its AI expenditure’s return on investment must rely on increasing user engagement and advertising revenue, which puts greater pressure on CEO Mark Zuckerberg to persuade stakeholders.

Meta disclosed in its earnings report that, in pursuit of superintelligence, related expenditures have risen to $33.4 billion, and its capital expenditure guidance for this year has been raised by $10 billion, bringing the total to between $125 billion and $145 billion.

Meta CFO Susan Li explained to analysts that the company underestimated AI computing demands in recent years, and now must invest heavily to expand infrastructure and ensure strategic flexibility for the coming years.

To support the enormous costs of AI development, Meta has begun controlling internal expenses. Recently, Meta announced layoffs of about 8,000 jobs, while 6,000 open positions are no longer being recruited.

In contrast, Alphabet’s cloud revenue grew significantly by 63%, with backlog orders rising to $460 billion due to increased demand for AI infrastructure.

Alphabet CEO Sundar Pichai emphasized that there is huge demand for graphics processing units (GPUs) and Google’s self-developed tensor processing units (TPUs). CFO Anat Ashkenazi also forecasted that capital expenditures in 2027 will further increase beyond this year’s $180 billion to $190 billion.

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Tech Giants Compete in AI Investment, High Costs Raise Concerns

Besides Google’s parent company and Meta, Microsoft and Amazon’s earnings reports also show that tech giants are investing hundreds of billions of dollars in related fields.

All these giants emphasize the necessity of AI investments, but the total expenditure of $650 billion this year still raises concerns among some investors.

Forrester analyst Lee Sustar believes that, considering the high costs and the not-yet-fully-realized returns, market anxiety about the sustainability of the AI boom persists, forcing investors to carefully evaluate these massive investments and their actual impact on corporate profitability.

Further reading:
AI race consumes massive energy! Microsoft CEO: AI must quickly benefit more people, or it will become a bubble