Microsoft and Google can’t stop talking about AI, and this chart proves it

Opinion: Despite hype, tech earnings still won’t show many results from AI yet

Microsoft
MSFT,
-3.05%
and Alphabet
GOOGL,
+6.87%

GOOG,
+6.73%,
Google’s parent company, have been investing in AI since long before last winter, when investors suddenly became a lot more interested in the topic in the wake of chatbot ChatGPT’s surging popularity. Since then, executives at both companies have ramped dramatically their mentions of the technology, and that hit a whole new gear Tuesday.

Read: Microsoft utters a dreaded word, but bulls on its stock are still cheering

There were 90 mentions of “AI” or “artificial intelligence” on Alphabet’s earnings call, according to MarketWatch’s review of transcripts provided by AlphaSense/Sentieo. Meanwhile, the topic came up 73 times on Microsoft’s call. The counts, which include mentions of the term brought up by analysts as well as executives, were new records for the respective companies.

“It’s worth reiterating that while generative AI is now supercharging new and existing ads products with tons of potential ahead, AI has been at the core of our ads business for years,” Alphabet Chief Business Officer Philipp Schindler said on the company’s call. “In fact, today, nearly 80% of advertisers already use at least one AI-powered search ads product. Our approach to AI and ads remains grounded in understanding what drives real value for businesses right now and what’s most helpful for users.”

Sundar Pichai, the chief executive of Microsoft, said customers can’t stop asking about AI applications. “We continue to innovate across the tech stack to help our customers thrive in the new era of AI,” he said.

Now that the AI frenzy is farther along and that Microsoft and Alphabet have established themselves as leaders in the field, Wall Street increasingly wants to know how much revenue opportunity is in the technology — and at what cost.

See also: Microsoft earnings top estimates, but stock falls as execs detail AI’s costs

“Even with strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales and our copilots reach general availability dates,” Microsoft Chief Financial Officer Amy Hood said on her company’s earnings call, referring to the company’s Azure cloud-computing business.

At the same time, Microsoft needs to spend up to bolster its capabilities. The company expects capital expenditures to ramp sequentially as the company’s new fiscal year progresses.

“The acceleration is really quite broad,” Hood said of capex expectations. “It’s on both the data centers and a physical basis, plus CPUs and GPUs and networking equipment. Think of it in a broad sense as opposed to a narrow sense.”

Opinion: Microsoft’s AI payday will take time, and investors need to be patient

In discussing second-quarter capital expenditures, Alphabet’s Ruth Porat, who is being elevated to president and chief investment officer from her current role as CFO, said “the largest component was for servers, which included a meaningful increase in our investments in AI compute.”

Though second-quarter capex was lower than expected due to other factors, Porat said she wanted to be “really clear that we do expect elevated levels of investment in our technical infrastructure, and that would be increasing through the back half of 2023.”

She added that “the primary driver of this, as you know well, is to support the opportunities we see in AI across the company, including the investments that we’ve already talked about, proprietary TPUs, all that we’re doing with GPUs as well as data-center capacity.”