Revenue season is here and once again it’s all about AI.
Setting the launch of OpenAI's ChatGPT in November 2022 as the starting line, it will be almost 17 months since the generative artificial intelligence revolution began. So far, most of the profits have gone to pick-and-shovel play.Nvidia
,
Advanced Micro Devices
,
and Micron Technology
,
Cloud providers such as Amazon Web Services and Microsoft Azure, and hardware vendors such as Dell Technologies and Super Micro Computer
.
But in the long term, AI is not just about capital investment. Someone has to use that thing. So the focus will shift to software companies this quarter. They're all desperately writing new code and improving it to join the AI wave.
Investors are buying up software stocks in hopes of eventually reaping AI profits in the aftermath. I'll have to deliver it someday. It's better to be early than late.
Ever the optimist, Wedbush analyst Dan Ives says his “countless on-the-ground research” has given him strong confidence that the AI revolution has “begun into its next growth gear” and that semiconductor He says that he passed the baton to software. Ives believes first-quarter results will be a “huge catalyst” for tech stocks, which could rise 15% by the end of 2024. He said AI-related spending will be 8% to 10% of IT budgets in 2024, up from less than $1. % in 2023. I understand that.
Advertisement – SCROLL TO CONTINUE
Here's what to consider before your tech revenue soars.
Boffo?
Netflix opens the big tech company's earnings call on Thursday. As in recent quarters, the focus will be on the company's progress in enrolling subscribers to its ad-supported subscription tier and its ongoing crackdown on password sharing. An important metric is subscriber growth. The consensus is for net new enrollments to be 4.5 million. Citi's Jason Bazinet believes the total will be closer to 7 million, but says investors are looking for 8 million. The stock has increased 27% since the beginning of the year and tripled in two years. Even the slightest mistake can lead to profit taking. I've seen some strange things.
Just ask Bing. One portfolio manager said the most important data point in this quarter's results was the inclusion of Microsoft.
's
AI Copilot Software. The company charges $30 per user per month. Microsoft isn't likely to reveal many details, but expect an upbeat tone. Also attracting attention is the Azure cloud business. This is expected to grow by 28% in the December quarter. “We've moved from talking about AI to applying AI at scale,” CEO Satya Nadella said a quarter ago. Morgan Stanley says AI could double Microsoft's earnings per share by fiscal year 2029.
crab apple. 2024 has been a rough year for Apple so far
Advertisement – SCROLL TO CONTINUE
Shareholders are dwindling thanks to a new antitrust lawsuit by the Department of Justice, tough competition conditions in China, a lack of AI-related news, and an overall lack of growth. In fact, Wall Street expects sales to decline 4% year over year in the March quarter. Apple plans to make a rapid succession of AI-related announcements at its developer conference in June, but the stock is stuck in a rut and earnings are unlikely to change its trajectory.
Like button.meta platform
's
The company's stock is up 47% this year, and the company has gained traction by using AI to better target ads and content on Facebook and Instagram. Dan Niles, founder of Niles Investment Management, believes the stock is still reasonably priced, with a price-to-earnings ratio in the mid-20s and sales growth in the mid-teens. Meanwhile, Meta is still reaping the benefits of its 2023 Year of Efficiency initiative, which has driven more than 20% headcount reductions. However, the rising cost of an AI engineer drawing a seven-figure salary package and his heavy spending on AI hardware will put pressure on profit margins. If CEO Mark Zuckerberg wants to drive his stock price even higher, he could shut down Reality Labs' Metaverse division, which loses well over $10 billion a year.
look for me One of the most difficult phones today is Alphabet
,
Parents of Google and YouTube. The company missed expectations for both divisions in the December quarter. The company's stock has risen 12% this year, but concerns remain about whether Google will be affected by competition in internet searches from chatbots, including its own Gemini (née Bard), which currently doesn't run ads. be. But like Meta, Google should see strong demand for advertising this year ahead of the Olympics and elections.
buy now. Niles also likes the outlook for Amazon.com.
,
Growth in Amazon Web Services' cloud division appears to have bottomed out after several quarters of decline. Wall Street consensus expects AWS to grow 14.9% in the quarter, up from 13.2% in December and 12.3% in September. AI should continue to drive demand. Niles also likes the outlook for the core retail business. Jefferies analyst Brent Till wrote in a recent research note that with less than 20% of global online retail sales and 85% of global IT spending still located in enterprise data centers, there is a “no chance for growth.” We have a long way to go,” he wrote.
big iron. Both Dell Technologies and Hewlett Packard Enterprise noted a surge in demand for AI servers in their latest quarterly reports. However, as AI adoption increases, there are signs that some companies are moving workloads back from the cloud to the data center. AI is cheaper to run in the cloud and data is better protected. This bodes well for hardware providers like Dell and data networkers like:
Advertisement – SCROLL TO CONTINUE
Arista Networks
.
Endurance Capital fund manager David Readerman sees Dell as a cheap play on AI hardware. As Readerman points out, a fund manager cannot invest all his money in Nvidia.
Write destination Eric J. Savitz (eric.savitz@barrons.com)