Let’s catch up on some of the earnings reports that have come out and see what insights we can find.
Microsoft’s market capitalization surpassed $3 trillion, a good portion of which is AI. Microsoft’s Azure revenue increased by 30% in the quarter ended Dec. 31, with a boost from its artificial intelligence technologies. The company’s overall revenue rose 18% to $62 billion, surpassing Wall Street’s expectations. Microsoft CEO Satya Nadella highlighted the growing adoption of AI tools and the acquisition of Activision Blizzard. Gaming revenue jumped 50%, making Microsoft Gaming a bigger business than Microsoft Windows for the first time. Other notable results include a 24% increase in Microsoft Cloud revenue and a 9.5% increase in LinkedIn revenue. The company’s Intelligent Cloud segment, including Azure, showed strong growth with a 30% increase in revenue.
Alphabet, the parent company of Google, reported a net income of $20.7 billion on revenues of $86.3 billion in the quarter ending December 31, 2023. For the full year, the firm reported a net income of $73.8 billion on revenues of $307.4 billion. Most revenues came from advertising, and revenue from subscriptions, platforms, and devices grew 18.5 percent, and Google Cloud revenues jumped 20.4 percent. Google is expected to spend $700 million on severance costs this quarter, according to Alphabet’s Q4 earnings report. This comes after the company laid off approximately 12,000 employees in January 2023, resulting in severance and related costs of $2.1 billion for the year.
Amazon reported a net income of $10.6 billion on revenues of $170 billion in the quarter ending December 31, 2023, exceeding expectations. Revenues were up 14 percent year-over-year, driven by strong holiday shopping and growth in various business segments such as e-commerce, advertising, AWS, and subscription services. AWS reported a slight increase in revenue growth in the last quarter of 2023, signaling a potential end to more than a year of contraction. The company’s operating profit also surged by 38%. Amazon’s cloud revenue grew 13% in the fourth quarter to $24.2 billion, but the company’s investments in conversational AI have yet to materialize.
Apple reported a 2% increase in revenue for its first fiscal year quarter, driven by higher iPhone and services revenue. However, sales of wearables and iPads declined, while Mac sales remained flat. The shorter reporting period impacted the December quarter numbers, but Apple indicated positive expectations for the upcoming quarter. Apple CEO Tim Cook teased a big AI announcement later this year, hinting at a “huge opportunity” for Apple with generative AI. The announcement is expected at WWDC in June, where Apple typically unveils new products. Apple has been testing AI tools internally, including a ChatGPT-style bot and a revamped Siri that uses generative AI.
And tying some of this together, digital ads show signs of rebound as Meta, Amazon, and Alphabet’s Google ad business experience growth in the market. Meta’s ad sales increased by 24%, Amazon’s ad unit rose by 27%, and Google’s ad business grew by 11%. Analysts predict higher spending due to big advertiser events and expect global ad spending to jump 10% in 2024.
Gaming bigger than Windows. That is both a statement on the size of the gaming market – which is enormous – and on the Windows market, which is a mature product on the wane. Where is the growth here? Cloud businesses, of which all three are showing growth.
I did want to highlight the raw cost of severance. $700 million this quarter… on a net income of 20 Billion with revenues of $86 billion.
Apple has sold all the iPhones. They’re running out of growth there and exploring new markets. It should be no surprise that AI is in the works, and their long-term investment in trying to figure out AR and VR makes sense when you put it in this context. They need to place some bets to find new markets.
And speaking of that market…