Google and Microsoft's AI-Driven Results Boost Wall Street Amid Inflation Concerns

Google and Microsoft's strong AI-focused results boosted Wall Street, offsetting disappointing U.S. inflation data. Alphabet, Google's parent company, saw its stock rise 10%, reaching a market valuation of over $2 trillion.

The company also announced its first quarterly dividend and a $70 billion stock buyback program. Microsoft gained nearly 2%, adding $54 billion to its market value, with its revenue growing 31% and AI services contributing 7 percentage points of growth to its Azure cloud platform.

Both companies reported that their quarterly revenue growth surpassed projections as more users turned to their AI services, including Microsoft's Copilot AI assistant and Google's Gemini chatbot. Analysts believe the strong AI-focused results from the tech giants justify their premium valuations, with Microsoft's 12-month forward price-to-earnings ratio at 30.40 and Alphabet's at 21.63.

Why this matters: The impressive performance of Google and Microsoft, driven by their investments in AI, highlights the growing importance of artificial intelligence in the tech industry. As these companies continue to innovate and integrate AI into their products and services, they are setting the stage for a new era of technological advancement that could have far-reaching implications across various sectors.

However, not all tech companies fared as well. Intel's stock sank 9.2% on a weak Q2 forecast, as the company struggles to capitalize on the AI boom. Despite a 9% increase in revenue for the first quarter, Intel's data center and AI segment saw only a 5% revenue increase. The company expects flat revenue growth and lower earnings in the current quarter, indicating that it is still facing challenges in the competitive AI components market.

Meta Platforms, Facebook's parent company, also experienced a 10% stock decline due to higher spending and lower-than-expected growth. The company warned of softer-than-expected growth and increased expenses, contrasting with the strong AI-driven results of its competitors.

The strong performance of Google and Microsoft helped lift the broader market, despite the disappointing U.S. inflation data. The personal consumption expenditures (PCE) price index rose 0.3% in March, matching the gain in February, and inflation increased 2.7% year-over-year. The data showed stubbornly higher housing and transportation costs, suggesting the Federal Reserve could keep interest rates elevated for a while. Citi says the Fed is likely to cut rates in July after the strong PCE report.

Key Takeaways

• Google and Microsoft's strong AI-driven results boosted Wall Street.
• Alphabet reached a market valuation of over $2 trillion, announced dividend and buyback.
• Microsoft's revenue grew 31%, with AI services contributing 7% to Azure growth.
• Intel struggles to capitalize on AI boom, expects flat revenue and lower earnings.
• Meta Platforms stock declined due to higher spending and lower-than-expected growth.