News

Great Expectations

James L. Flint

• January 31, 2024

Hi everyone. Sometimes, stocks get ahead of themselves.

Late Tuesday, three of the biggest names in technology— Alphabet, Microsoft, and Advanced Micro Devices —reported December quarter results and offered the latest updates on their AI progress.

Solid Numbers, Lukewarm Reception

While the headline numbers were generally solid, they weren’t good enough to impress investors given the stocks’ big runs.

Microsoft had the best quarter of the bunch, reporting earnings per share of $2.93, well ahead of the analyst consensus for $2.76. Alphabet beat profit estimates, posting EPS of $1.64 versus the consensus of $1.59. AMD’s profit was in line with the estimates, but the company’s revenue outlook was disappointing.

All three stocks were down in mid-day trading Wednesday. Alphabet shares dropped 6%, AMD slipped 3%, and Microsoft was down 1.4%. The tech-heavy Nasdaq Composite was off 1.6%.

Managing Expectations

The main problem with the reports wasn’t the numbers but the expectations going in. Take AMD’s AI chip outlook. On last night’s conference call with investors, CEO Lisa Su said that AMD now expects revenue for its AI data center MI300 GPU products to surpass $3.5 billion in 2024—up from a $2 billion forecast just three months ago. While the guidance is up significantly, some Wall Street analysts had estimates of up to $8 billion.

The Importance of Looking Beyond Day-to-Day Stock Movements

As an investor, it's crucial to have a long-term perspective and not be swayed by daily ups and downs in the stock market. Instead, focus on the technology companies' strong belief in the future demand for artificial intelligence (AI). The recent comments regarding capital expenditure budgets only solidify this trend.

Microsoft has stated that it expects a substantial increase in capital expenditure in the current quarter and plans to make aggressive investments in the coming quarters. Similarly, Alphabet has announced that its capital expenditure will be notably larger in 2024 compared to the previous year. Both companies attribute these infrastructure investments to the rising demand for AI.

However, the AI arms race goes beyond just Microsoft and Alphabet. Super Micro, a leading independent manufacturer of high-end AI servers for data centers, recently surpassed expectations and raised its full-year revenue guidance by almost 40%. Furthermore, Nvidia CEO Jensen Huang revealed that the demand for AI graphics processing units (GPUs) continues to outpace supply, with 2024 projected as a significant year for growth.

Meta CEO Mark Zuckerberg also joined the conversation by boasting on social media about the acquisition of 350,000 Nvidia H100 GPUs and nearly 600,000 H100 equivalent GPUs in terms of total computing power by the end of this year.

While we await reports from Meta, Amazon, and Apple this week, all indications point to continuous acceleration in AI spending. These developments show that despite any fluctuations in stock prices, the demand for AI remains on a strong upward trajectory.