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Here are the takeaways from today’s Morning Brief. sign up Every morning you will receive the following message in your inbox:
Gone are the days when cost efficiency alone was enough; investors who have benefited from Big Tech are looking for more.
Driven by high expectations for AI-driven transformation and a narrative of relentless growth, the market is applying the same harsh logic of more with less.
But instead of management touting the efficiencies that have helped it weather tough quarters, it’s shareholders who are putting the pressure on perfection.
Alphabet (GOOG, GOOGL) and Microsoft (MSFT) were under pressure this week. Although the pair has outperformed analysts’ expectations, investors are fixated on perceived weaknesses and collectively crave superior results to justify holding the expensive stock. Masu.
But when investors applied tougher valuations to multitrillion-dollar behemoths, areas that looked weaker, like advertising revenue and cloud growth, only appeared weaker. It is not enough that the results violate or exceed the predicted numbers. Only a huge success can fully satisfy Big Tech shareholders.
Meta Inc. (META) and Amazon Inc. (AMZN) made deliveries Thursday, offering strong outlooks for the coming months and, in CEO Mark Zuckerberg’s case, introducing a sweetener: a new dividend. Investors rejoiced.
This week’s split between Big Tech’s brethren highlights the relentless judgment of investors accustomed to abundance. Success is not just about doing great things.
Analyst Dan Ives said after Microsoft’s successful report that this quarter “should be printed and hung in the Louvre.”
But investors figuratively chose to sit out the show, highlighting the disparity between inflated desires and what fast-growing companies can deliver.
Investors expressed other concerns about the otherwise thriving company’s finances. The big pitch executives are touting about AI’s transformative power also appears to include some small details in the form of large upfront investments.
Capital spending rose 45% to more than $11 billion in the quarter, Alphabet reported. Microsoft also recorded his 55% increase in capital expenditures. For Alphabet, the increase in spending is primarily related to servers and data centers, the company said, as it prepares for potential long-term growth in global AI applications.
And there’s more where it came from. CFO Ruth Porat said investment in capital expenditures will be significantly higher in 2024. This technology, as well as public excitement, could prove difficult to sustain.
Just buying the fuel to fuel dreams of AI domination can be detrimental.
Hamza Shaban is a reporter for Yahoo Finance, covering markets and economics. Follow Hamza on Twitter @hshaban.
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