Big Tech keeps prioritizing AI as earnings approach

[Pelican Press 0]

Big Tech keeps prioritizing AI as earnings approach

Sundar Pichai, chief executive officer of Alphabet Inc., during Stanford’s 2024 Business, Government, and Society forum in Stanford, California, US, on Wednesday, April 3, 2024.

Justin Sullivan | Getty Images

As tech’s behemoths get set to report earnings this week, they do so facing a mountain of drama.

At

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, there have been protests and restructurings, while Tesla just announced mass layoffs, price cuts and a Cybertruck recall.

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’s OpenAI relationship faces fresh scrutiny and

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parent Meta’s major rollout of its new artificial intelligence assistant last week didn’t go so well.

The troubling news comes alongside a generative AI gold rush, as tech giants race the technology into their vast portfolios of products and features to ensure they don’t fall behind in a market that’s predicted to

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 in revenue within a decade.

Wall Street was openly jittery about the upcoming results, pushing the tech-heavy Nasdaq Composite down 5.5% last week, the steepest weekly slump since November 2022. Nvidia, which has emerged as an AI darling, plunged 14%, leading the slide.

“Whether this tech selloff continues, I think really depends on how the mega-cap tech reports,” said King Lip, chief strategist at BakerAvenue Wealth Management, in an interview with CNBC’s “Closing Bell” on Monday. “Valuations have definitely been more reasonable now, now that we’ve had a little bit of a correction.”

Lip said that in the last couple of weeks his firm has “trimmed some of our tech exposure.”

Tech companies have been pouring record sums into emerging generative AI startups and investing heavily in Nvidia’s processors to build AI models and run massive workloads. While that market is growing rapidly, investors are growing anxious that other issues at hand could lead to a pullback in spending.

On this week’s earnings calls, companies are likely to continue highlighting their efforts to cut costs and bolster profits, an efficiency theme that’s been running across the tech industry since early last year.

Tesla kicks off tech earnings season after the close of trading on Tuesday, with shares of the electric vehicle maker trading at their lowest since January 2023. Meta, coming off its biggest weekly stock slide since August, follows on Wednesday.

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and Alphabet report on Thursday, giving Wall Street a close look at how businesses are planning their budgets for AI infrastructure.

Here are some of the biggest issues facing the big tech companies in their reports this week.

Tesla

A Tesla Cybertruck sits on a lot at a Tesla dealership on April 15, 2024 in Austin, Texas. 

Brandon Bell | Getty Images

Tesla shares fell for a seventh straight day on Monday and are now down 43% for the year. Elon Musk’s EV company is expected to report a decline in sales of about 5%, which would be the first year-over-year revenue drop since 2020, when the Covid pandemic disrupted operations.

Tesla’s earnings follow a bruising quarterly deliveries report and additional price cuts to the company’s vehicles and its premium driver assistance system.

Last week, Tesla said it was laying off more than 10% of its workforce, and the same day executives Drew Baglino and Rohan Patel announced their departures.

“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” Musk wrote in a memo announcing the layoffs.

Two days later, Musk informed employees via email that the company had sent out “incorrectly low” severance packages to some *****-off workers. And on April 12, Tesla issued a voluntary recall of more than 3,800 Cybertrucks to fix a “stuck pedal” issue depicted in a viral TikTok video.

“Since late 2023, sentiment on Tesla (TSLA) has deteriorated,” wrote John Murphy, an analyst at Bank of America, in a note on Monday.

Meta

Meta has been a good bet for investors this year despite last week’s slip. The stock is up 36% in 2024 after almost tripling last year, when CEO Mark Zuckerberg told Wall Street that 2023 would be the company’s “year of efficiency.”

But Meta still faces plenty of questions. For one, its Reality Labs division, which houses all of the virtual reality technologies for the nascent metaverse, is expected to show a quarterly loss of over $4 billion for a second straight *******.

When it comes to AI, Meta debuted its assistant — Meta AI — on WhatsApp,

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,

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and Messenger last week. It was the company’s biggest-ever AI initiative and is set to go up against OpenAI’s ChatGPT and 

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’s Gemini.

But Meta AI quickly led to controversy. The assistant reportedly joined a private parents’ group on

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and claimed to have a

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, sounding off in the comments about its experiences with New York-area educational programs. In

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, it reportedly joined a Buy Nothing forum and tried to do free giveaways for nonexistent items.

Now, Meta has to show that it’s ready for what’s certain to be a heated election season, as President Joe Biden and Donald Trump prepare to square off for a second time. Dating back to Trump’s successful presidential bid in 2016,

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has been a problematic place for political discourse and misinformation.

Meta is expected to report revenue growth of 26% from a year earlier to $36.16 billion, according to LSEG. That would mark the fastest rate of expansion for any ******* since 2021.

Alphabet

Sundar Pichai, chief executive officer of Alphabet Inc., during Stanford’s 2024 Business, Government, and Society forum in Stanford, California, US, on Wednesday, April 3, 2024. 

Loren Elliott | Bloomberg | Getty Images

On a busy Thursday for tech earnings, Alphabet is likely to capture the most attention.

Last week, CFO Ruth Porat announced a restructuring of

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’s finance department, a move that will include layoffs and relocations, as the company drives more resources towards AI.

On the same day,

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 terminated 28 employees, according to an internal memo viewed by CNBC, following a series of protests against labor conditions and the company’s contract to provide the ******** government and military with cloud computing and artificial intelligence services.

The dismissals came after nine

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workers were arrested on trespassing charges Tuesday night, staging a sit-in at the company’s offices in New York and Sunnyvale, California, including a protest in

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Cloud CEO Thomas Kurian’s office. The arrests, livestreamed on

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by participants, coincided with rallies outside

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offices in New York, Sunnyvale and Seattle, which attracted hundreds of attendees, according to workers involved.

On Thursday, Alphabet CEO Sundar Pichai announced a

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of the company’s AI teams, including responsible AI and related research teams, under the

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DeepMind umbrella. He said in a memo, “this is a business,” and that employees should not “attempt to use the company as a personal platform, or to ****** over disruptive issues or debate politics.”

Pichai has struggled to quell employee discontent on a host of matters since the pandemic, as the company has been forced to reckon with slower growth than in years past and an investor base that’s become increasingly concerned with costs.

Analysts expect revenue growth of 13% for the first quarter, which would mark a second straight quarter of year-over-year growth in the low teens. For four straight periods, between mid-2022 and mid-2023, expansion was in single digits as advertisers pulled back due to soaring inflation and rising interest rates.

Alphabet shares are up 12% this year, topping the S&P 500, which has gained 5.1%.

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CEO Satya Nadella (R) speaks as OpenAI CEO Sam Altman (L) looks on during the OpenAI DevDay event on November 06, 2023 in San Francisco, California. Altman delivered the keynote address at the first ever Open AI DevDay conference. 

Justin Sullivan | Getty Images

As for

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, the company

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a ********* Union antitrust probe into its relationship with OpenAI, after EU regulators had pointed to the possibility earlier this year.

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has invested more than $10 billion in OpenAI, whose ChatGPT chatbot kicked off the generative AI ***** in late 2022. AI has been a major focus of

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’s earnings calls since then, as the company serves as OpenAI’s key technology partner through its Azure cloud infrastructure.

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has invested billions of dollars in AI startup Anthropic as well, and has taken stakes in Mistral, Figure and Humane.

The company’s position in AI has been the biggest driver behind its ascent to $3 trillion in market cap, passing Apple as the most valuable U.S. company. However, the stock is only up 6.8% this year, trailing many of its tech peers, and some analysts see potential weakness in parts of

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’s customer base, notably small and medium-sized businesses.

“MSFT has more SMB and consumer exposure than any other stock we cover,” wrote analysts at Guggenheim, in a note dated April 21. “And while those cohorts have held up surprisingly well during this soft macro *******, we are starting to see some indications of weakening demand from them.”

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is expected to report sales growth of 15% in the first quarter, according to LSEG, but analysts are projecting a slowdown over each of the next three periods.

WATCH: There’s more room for downside in tech stocks

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Corp,Meta Platforms Inc,NVIDIA Corp,Mark Zuckerberg,

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,business news
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