US Big Tech Projected To Record Strongest Revenue Growth In The Last Year

- Big Tech in the US will likely record their strongest quarterly revenue growth in at least the past year as their main business has stabilized. But for investors looking for signs of an increase from artificial intelligence (AI) may be disappointed.

Microsoft, parent Google Alphabet, parent Facebook of Meta Platforms, and Amazon is expected to have strengthened the company's software business recovery and their digital advertising as professional and consumer spending remains stable despite global economic uncertainty.

Shares of the four companies have surged - between Microsoft's 36% to Meta's 157% - this year, increasing their combined market value to more than $6 trillion and lifting the S&P 500 (.SPX) reference index.

"After a year where company spending is suppressed by concerns about the economy, we are entering a year where these concerns are slowly easing, creating a more stable spending environment in enterprise software and advertising," said Gil Luria, senior software analyst at DA Davidson.

While the company's demand has stabilized for older products, it does not apply to cloud computing, which is the backbone of Microsoft and Amazon. Both are likely to only slightly exceed the lowest cloud growth rate they recorded in the previous quarter.

However, Microsoft is likely to announce some of the successes of its investment in OpenAI and the integration of this technology in its products, analysts say. The company has promised to spend a massive budget to meet demand for its AI products.

RBC Capital Market estimates Microsoft will generate more than $3 billion from this generative AI offering this fiscal year.

For others, investment in AIs such as buying expensive Nvidia chips may cost them their profits in the short term.

"This possibility will not have a major impact on revenue until 2025 as companies are still looking for their generative AI strategy," said RBC analyst Rishi Lineia.

On Tuesday, October 24, Microsoft is likely to report an increase in revenue in the first quarter of around 9%, according to LSEG data, driven by the power of its company's productivity devices. However, the costs incurred are expected to have jumped by 8.4%, which is the highest figure in a year.

On the same day, Alphabet is expected to record a 10% increase in quarter sales. Revenue from Google Services, which includes YouTube, Search, and app sales, is expected to have grown by 8.5%.

Alphabet and Meta are expected to benefit from increased digital advertising sales ahead of the holiday shopping season.

Last month, media research firm and Magna's investment increased its projection for US ad spending growth to 5.2%, from 4.2% previously, for 2023. They expect digital advertising sales to increase by 9.6% in that period.

Meta is expected to report an increase in its quarterly revenue by more than one-fifth, which is the largest in the last two years, and details its AI plans, after announcing a series of AI ads last month.

However, cloud computing growth for all these companies is expected to show a slight increase as clients look for ways to optimize their infrastructure costs.

Microsoft's Amazon Web Services and Azure market leaders are likely to grow by 12.4% and 26.2%, respectively (Azure's estimate from Visible Alpha) this quarter.

While they will rise slightly from the previous lowest growth rate in the previous quarter, Google will replace them with a growth of about 25.7%.

Amazon, is expected to be protected by strong retail sales, thanks to a good labor market. The e-commerce giant is projected to record an 11.3% increase in revenue on Thursday.

Meta reported on Wednesday and Apple will close Big Tech's earnings with results next week, on November 2.