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 diverged. 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 U.S. stock market welcomed a week of tech giants’ earnings reports, with Google’s parent company Alphabet and Meta both releasing financial results, both showing their strongest revenue growth in years and simultaneously raising their AI capital expenditure guidance for this year.

Although Alphabet and Meta’s financial figures surpassed Wall Street forecasts, investors’ reactions were vastly different.

Alphabet reported nearly $110 billion in revenue for the first quarter, with profits reaching $62.6 billion. Thanks to steady performance in cloud and advertising revenues, coupled 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 at the forefront of the AI revolution.

D.A. Davidson analysts also mentioned in their report that Google’s performance outperforms its peers and that this is already 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% revenue growth rate—the strongest expansion since 2021. Despite 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 expenditures but weaker monetization compared to Google?

The main reason for the divergence in stock performance between the two companies lies in differing 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.

However, Meta lacks such cloud services, and 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 has 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 it will lay off about 8,000 employees, while 6,000 open positions will no longer be recruited.

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

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.

Related reports:
No reliance on Nvidia! Google and MediaTek promote AI chip innovation, with TSMC as a key partner?

Tech giants compete to invest in AI, raising concerns over high costs

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

Each giant emphasizes 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, the market remains anxious about the sustainability of the AI boom, forcing investors to carefully evaluate these massive investments and their actual impact on corporate profitability.

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