Google and Microsoft Invest Heavily in AI

Google and Microsoft, two leading technology companies, are allocating significant funds towards advancing artificial intelligence (AI) technologies. Both companies recently reported strong financial results for the June-ended quarter, driven by increased revenue growth and cost reductions.

Google’s core advertising business experienced growth after two consecutive quarters of decline, while Microsoft’s cloud and enterprise software businesses surpassed Wall Street’s expectations for the final quarter of its fiscal year. Despite a slowdown in global corporate spending on technology, both companies demonstrated profitability.

Although their core businesses performed well, the focus has gradually shifted towards generative artificial intelligence (AI). Microsoft has seen a surge in its share price due to the company’s aggressive adoption of genAI technology in its products. However, following its recent report, Microsoft’s stock dipped over 3% as it projected slightly lower revenue for the upcoming quarter compared to Wall Street’s estimates.

On the other hand, Alphabet, Google’s parent company, experienced a 6% increase in stock price after releasing its report, which did not include any official financial projections.

Both companies remain committed to investing in AI. Microsoft and Alphabet are particularly suited for this pursuit due to their substantial computing resources and financial capabilities. Microsoft currently generates nearly $60 billion in annual free cash flow, while Alphabet produces $71 billion. In the past four quarters, both companies have made capital expenditures of over $28 billion, surpassing the annual revenue of three-quarters of the companies in the S&P 500.

In their recent earnings releases, both companies emphasized their intention to further increase investments. Alphabet’s capital expenditure for the recent quarter, $6.9 billion, was lower than analysts’ expectations. However, Alphabet’s Chief Financial Officer, Ruth Porat, assured analysts that capital expenditures will continue to increase throughout the year to support AI opportunities.

Microsoft is taking an even more aggressive approach, with capital expenditure for the June quarter reaching a record high of $8.9 billion, a 30% increase compared to the previous year. Microsoft’s CFO, Amy Hood, stated that the company plans to sequentially increase capital expenditure in each quarter of the new fiscal year.

Both Google and Microsoft are well-positioned to advance their AI initiatives, despite short-term revenue fluctuations. By investing heavily in AI, these companies are paving the way for future technological advancements in this field.