"Generative AI Will Scale"
Macro Perspectives
US stocks were mixed on Tuesday, with the S&P 500 down 0.06% and the Nasdaq declined 0.76% while the Dow Jones added 133 points.
The JOLTS report showed an unexpected rise in job openings to 9 million, cutting bets for a 25bps rate cut by the Fed in March.
UPS sank by 8.16% after reporting a full-year revenue outlook below forecasts.
Whirlpool was also down by 6.64% after giving downbeat sales guidance.
In contrast, General Motors shares soared 7.8% after the company beat estimates for both earnings and revenue and provided earnings guidance better than its 2023 results.
We heard from two of the big tech giants that are working on the frontier of generative AI (MSFT and GOOG). They reported on earnings after the market close and we'll hear from the two others on Thursday (META and AMZN).
Building on my previous note, more important than the record revenues and double-digit earnings growth that will come from these tech giants will be the education gleaned from their work on and outlook on AI.
Indeed, the numbers from Microsoft and Google were big, and we got an education on the evolution of this generative AI-driven technology revolution.
Microsoft, now the most valuable company in the world, grew revenue by 18% and earnings (EPS) by 26%.
Google, the fourth-most valuable company in the world, grew revenues by 14% and earnings by 56%.
But both stocks were down after the reports. Why? The financial news will tell you that Google (Alphabet) disappointed on ad revenue growth, whilst Microsoft disappointed on cloud revenue growth.
This is Wall Street trying to find something to scrutinise. Keep in mind, these are high-margin, double-digit growth companies with a competitive moat that has only grown wider with the introduction of generative AI - which happens to be a transformative growth and margin expanding catalyst.
After all, it was only eight months ago that Nvidia's CEO shocked the world, declaring "the beginning of the major technology era." He told us there was a "rebirth of the computer industry" underway, where "AI has reinvented computing from the ground up.”
With that, this is just the third quarterly earnings report for the big tech giants since that "Nvidia moment," and they have all reoriented their businesses around AI - a total transformation. They are leading what Satya Nadella (Microsoft CEO) has called the "productivity revolution."
This is all very fast moving and sets us up for a year in which "generative AI will scale."
Indeed, both Microsoft and Google reported rapid adoption of their respective commercialised large language models last quarter. Nadella said, half of Fortune 500 companies are already using Microsoft's ChatGPT.