Amazon, Microsoft Hit AI Investment Jackpot... Apple, Meta's Performance 'Struggling'

▲ Amazon (AMZN), Microsoft (MSFT), Meta (META), Apple (AAPL), Artificial Intelligence (AI) / AI Generated Image

Amazon.com (AMZN) and Microsoft (MSFT) have taken the lead in the artificial intelligence (AI) investment race. Their performance has proven that massive data center investments are translating into sales and profits.

According to Barron's on August 1st (local time), the release of earnings from four big tech companies and key economic indicators all at once increased volatility in tech stocks. The US Q2 GDP, June Personal Consumption Expenditures (PCE) price index, and the Federal Reserve's (Fed) interest rate decision also shook the market. This was compounded by forced liquidations by leveraged investors. The iShares Semiconductor ETF fell 12% in three days. The hedge fund Situational Awareness, which had recorded high returns from AI investments, faced margin calls and forced selling of its holdings.

Despite the sharp market downturn, the performance of cloud companies remained solid. Amazon Web Services, Microsoft Azure, and Alphabet's (GOOGL) Google Cloud recorded sales and operating profit margins that exceeded market expectations. Depreciation expenses from past capital expenditures increased. Companies offset cost burdens through operational efficiency improvements. Although new data centers were successively put into operation, cloud supply remained tight. Amazon raised AI server rental prices twice this year. Amazon, Microsoft, and Alphabet plan to invest approximately $600 billion in AI data centers this year.

Microsoft also delivered better-than-expected results in enterprise software. Paid users of Microsoft 365 Copilot doubled from 15 million six months ago to 30 million. This proportion is still small compared to the total 450 million Microsoft 365 subscribers. However, market concerns that AI would undermine the growth of existing software companies and subscription-based revenue models have significantly weakened.

Meta Platforms (META) and Apple (AAPL) received mixed reviews. Meta projected capital expenditures of up to $145 billion this year. However, the lack of a cloud business to sell its invested computing resources externally was identified as a weakness. Revenue increased by 28% year-on-year. Profit margins significantly dropped due to surging depreciation expenses and AI research costs. Apple's stock price fell 8% due to sluggish performance in its iPhone and services businesses. Apple's R&D expenses for this fiscal year increased by over 30%. However, its capital expenditure in the last quarter was only $2.5 billion, indicating a slower pace of AI infrastructure expansion compared to its competitors.

The liquidation of Situational Awareness exposed the risks of excessive leveraged investment. The semiconductor ETF fell 27% from June 30 to July 29. During the same period, the software ETF rose 2%. The fund that received a margin call sold all of its listed company shares to Citadel. The semiconductor ETF rebounded 8.5% the day after the sale. While the profitability of cloud and enterprise software was confirmed, the vulnerability of AI investment strategies relying on debt also became clear.

[Article Key Summary]

-Amazon, Microsoft, and Alphabet demonstrated the effectiveness of their AI data center investments by boosting cloud revenue and profitability.

-Paid users of Microsoft 365 Copilot doubled from 15 million to 30 million in six months.

-Meta and Apple revealed challenges in monetizing AI investments, and AI investment funds relying on leverage faced forced liquidation.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*