Sundar Pichai, CEO of Alphabet Inc., during the Stanford Forum on 2024 Business, Government and Society in Stanford, California, USA, on Wednesday, April 3, 2024.
Justin Sullivan | Getty Images
As tech behemoths prepare to report earnings this week, they do so amid a mountain of drama.
In the Googlethere were protests and restructuring, while Tesla just announced mass layoffs, price cuts, and a Cybertruck recall. of Microsoft The OpenAI relationship is also facing new scrutiny from Facebook parent of Meta The major launch of its new AI assistant last week didn’t go so well.
The troubling news comes alongside a generative AI gold rush, as Big Tech players race new technology across their vast portfolios of products and capabilities to ensure they aren’t left behind in a market predicted to a maximum of $1 trillion in revenue within a decade.
Wall Street is openly worried about the upcoming results, pushing the tech-heavy Nasdaq Composite down 5.5% last week, its steepest weekly decline since November 2022. Nvidiawhich has emerged as an artificial intelligence favorite, plunged 14%, leading the decline.
“Whether this tech sell-off continues, I think it really depends on how mega-cap tech reports,” King Lip, chief strategist at BakerAvenue Wealth Management, said in an interview on “Closing Bell.” of CNBC on Monday. “Valuations were definitely more reasonable now, now that we’ve had a bit of a correction.”
Lip said that over the past two weeks his company has “reduced some of our technology exposure.”
Tech companies are pouring record sums into emerging AI startups and investing heavily in Nvidia processors to build AI models and run massive workloads. While this market is growing rapidly, investors worry that other issues could lead to a slowdown in spending.
In this week’s earnings announcements, companies are likely to continue to highlight their efforts to cut costs and boost profits, an efficiency theme that has been running across the industry since early last year.
Tesla kicks off the tech earnings season after the close on Tuesday, with the electric vehicle maker’s shares trading at their lowest level since January 2023. The Meta, which posted its biggest weekly decline since August, follows on Wednesday . Microsoft and Google parent Alphabet are reporting Thursday, giving Wall Street a close look at how companies are planning their budgets for artificial intelligence infrastructure.
Here are some of the biggest issues facing Big Tech companies at their shows this week.
Tesla
A Tesla Cybertruck sits tall 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% year to date. Elon Musk’s electric vehicle company is expected to report a drop in sales of around 5%, which would be the first year-on-year revenue drop since 2020, when the Covid pandemic halted operations.
Tesla’s earnings follow a robust quarterly delivery report and additional price cuts on the company’s vehicles and flagship driver assistance system.
Last week, the EV maker said it was laying off more than 10 percent of its workforce, and on 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 critically important that we look at every aspect of the company for cost reductions and productivity gains,” Musk wrote in a memo announcing the layoffs.
Two days later, Musk informed employees via email that the company had sent “incorrectly low” severance packages to some laid-off workers. And on April 12, Tesla issued a voluntary recall of more than 3,800 Cybertrucks to fix a “stuck pedal” problem depicted in a viral TikTok video.
“Since late 2023, sentiment for Tesla ( TSLA ) has deteriorated,” Bank of America analyst John Murphy wrote in a note on Monday.
After
Meta has been a good bet for investors this year despite last week’s slide. The stock is up 36% in 2024 after nearly tripling last year when he was CEO Mark Zuckerberg told Wall Street that 2023 will be the company’s “year of efficiency.”
But Meta still faces many questions. First, its Reality Labs division, which houses all the virtual reality technologies for the nascent metaverse, is expected to post a quarterly loss of more than $4 billion for the second consecutive period.
In terms of artificial intelligence, Meta debuted its assistant – Meta AI – on WhatsApp, Instagram, Facebook and Messenger last week. It was the company’s biggest AI initiative in history and is set to go up against OpenAI’s ChatGPT and Google’s Gemini.
But Meta AI quickly led to controversy. The aide allegedly joined a private parenting group on Facebook and claimed to have one gifted and disabled child, is heard in comments about her experiences with New York area educational programs. In another caseallegedly joined a Buy Nothing forum and tried to do free giveaways for non-existent items.
Now, Metta must show he’s ready for a hot campaign season as President Joe Biden and Republican Donald Trump prepare for second terms. Since Trump’s successful 2016 presidential bid, Facebook has been a hotbed for political discourse and misinformation.
Meta is expected to post a 26% year-over-year revenue increase to $36.16 billion, according to LSEG. That would mark the fastest rate of expansion for any period since 2021.
Alphabet
Sundar Pichai, CEO of Alphabet Inc., during the Stanford Forum on 2024 Business, Government and Society in Stanford, California, USA, on Wednesday, April 3, 2024.
Lauren Elliot | Bloomberg | Getty Images
A busy Thursday for tech profits, Alphabet is likely to get the most attention.
Last week, chief financial officer Ruth Porat announced a restructuring of Google’s finance division, a move that will include layoffs and relocations as the company directs more resources toward artificial intelligence.
On the same day, Google fired 28 employees, according to an internal memo seen by CNBC, following a series of protests against working conditions and the company’s contract to provide the Israeli government and military with cloud computing and artificial intelligence services.
The firings came after nine Google employees were arrested on trespassing charges Tuesday night, occupying the company’s offices in New York and Sunnyvale, California, including a protest at the office of Google Cloud CEO Thomas Kurian. The arrests, streamed live on Twitch by participants, coincided with rallies outside Google offices in New York, Sunnyvale and Seattle that drew hundreds of attendees, according to the workers involved.
On Thursday, Alphabet CEO Sundar Pichai announced a consolidation of the company’s artificial intelligence teams, including responsible AI and related research teams, under the Google DeepMind umbrella. He said in a memo that “this is a business” and employees should not “try to use the company as a personal platform or fight over disruptive issues or discuss politics.”
Pichai has struggled to quell employee discontent over a range of issues since the pandemic, as the company has been forced to reckon with slower growth than in previous years and an increasingly cost-conscious investor base.
Analysts expect first-quarter revenue to rise 13%, which would mark a second straight quarter of annual growth in the low-teens. For four straight periods between mid-2022 and mid-2023, expansion was in single digits as advertisers pulled back amid soaring inflation and rising interest rates.
Alphabet shares are up 12% this year, outperforming the S&P 500, which gained 5.1%.
Microsoft
Microsoft 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 gave the keynote address at the first Open AI DevDay conference.
Justin Sullivan | Getty Images
As for Microsoft, the company seemed to narrowly avoid a European Union antitrust investigation into its relationship with OpenAI, after EU regulators flagged the possibility earlier this year.
Microsoft has invested more than $10 billion in OpenAI, whose ChatGPT chatbot started the AI boom in late 2022. AI has been at the center of Microsoft’s earnings calls ever since, as the company serves as a key technology partner of OpenAI through the Azure cloud infrastructure.
Microsoft 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 artificial intelligence was the biggest driver behind its rise to $3 trillion in market capitalization, surpassing apple as the most valuable company in the USA. But the stock is up just 6.8% this year, trailing many of its peers, and some analysts see potential weakness in parts of Microsoft’s customer base, particularly small and medium-sized businesses.
“MSFT has more exposure to SMBs and consumers than any other stock we cover,” Guggenheim analysts wrote in a note dated April 21. signs of weakening demand from them”.
Microsoft is expected to report sales growth of 15% in the first quarter, according to LSEG, but analysts predict a slowdown for each of the next three periods.