By Aditya Soni
(Reuters) – Alphabet and Microsoft ignited a rally in technology stocks on Friday with earnings that showed big AI investments were driving growth, allaying doubts that their costly bets would take time to pay off after a soft forecast from Meta Platforms.
Alphabet surged 10% and closed with a stock market value above $2 trillion for the first time, according to LSEG data, after the company sweetened the pot for investors with its maiden dividend and a $70 billion stock buyback.
The world’s fourth most valuable firm flirted with the milestone on an intraday basis over three years ago, according to LSEG Datastream.
Microsoft gained nearly 2% and added about $54 billion to its market value.
After pouring billions of dollars into the infrastructure needed to support AI applications, both Alphabet and Microsoft reported that their quarterly revenue growth was outpacing expectations as more users turn to services including the Copilot AI assistant and the Gemini chatbot.
AI services accounted for 7 percentage points of the 31% jump in revenue at Microsoft’s Azure cloud-computing platform between January and March, finance chief Amy Hood said.
She added near-term AI demand was a bit higher than the company’s capacity, which held back growth in the quarter and highlighted the need for spending to expand its infrastructure.
At Google, cloud revenue jumped about 28% with strong growth in Google Workspace, where the Alphabet unit offers a slew of AI features powered by its large language model Gemini.
The results contrasted with a warning of higher spending and softer-than-expected growth from social media giant Meta, whose stock tumbled 10% on Thursday.
“This quarter illustrated how demand remains high for generative AI from Microsoft customers, and we continue to believe that Microsoft sits as a leader in this GenAI environment,” D.A. Davidson analyst Gil Luria said.
“Meta is indicating the results of further increased investment may be years away while Microsoft and Google are showing them right now.”
The results also sparked a rise of 3.4% in Amazon.com, which will report earnings on Tuesday.
“The three hyperscalers (major cloud companies) we’ve heard from thus far all highlighted a similar message on AI capital expenditure – this is an arms race, the AI opportunity is enormous, and spending will continue to be aggressive/ahead of market expectations,” Bernstein analyst Michael Chiang said.
Microsoft’s capital expenditures grew by $300 million from the previous quarter to $11.5 billion, while Alphabet’s capital expenditures were $12 billion, a 91% jump from a year prior.
At least 28 analysts raised their price targets on Alphabet, pushing the median view to $190, compared with its last close of $156. Microsoft saw at least 25 price-target increases from analysts, with the median view on the stock now at $475.
Microsoft has a 12-month forward price-to-earnings ratio of 30.40, compared with Alphabet’s 21.63.
Some analysts believe the more premium valuation was justified. “Google Cloud showed improvement but less than the growth of Azure. Azure’s enterprise focus and their differentiated capabilities played a part and we (and the market) await Amazon Web Services results,” Bernstein analysts said.
