Earnings Season is Here!
Tech enthusiasts, get ready! Today after the closing bell, Microsoft and Alphabet will unveil their third-quarter financial results, followed by Meta and Amazon later this week. We’re eagerly awaiting insights into whether these tech giants have made significant strides from their investments in AI-driven computing tasks and products.
Previously, during the Q2 2023 results, we observed that while AI-related expenses were increasing, the resulting revenue felt more like a promise for the future than a current reality. Will this trend continue in the current reports?
It's essential to distinguish between customer enthusiasm for new technologies and the actual revenue generated from those innovations. Our focus today will be on how swiftly major tech companies can translate market interest in AI into tangible profits.
The ability of Big Tech to market AI-powered tools and services will reveal just how prepared the tech-buying sector is to invest in new software. A robust performance from Microsoft and Alphabet in the AI domain would signal positive news for startups. Conversely, another quarter of heavy infrastructure spending without clear revenue projections would cast a less favorable outlook.
There are indications that the AI market is heating up for private technology companies. Ali Ghodsi, CEO of Databricks—who recently acquired data replication startup Arcion for $100 million—shared in a recent interview that this quarter has been exceptionally strong for his company.
Ghodsi remarked in a discussion with CNBC’s Jon Fortt: “We’re observing an extraordinary surge in buying signals. This quarter has been one of our best in a long time, driven by actual consumption rather than merely new software purchases. The way customers are utilizing our software is significantly increasing. The market is bouncing back quickly for those focused on data and AI.”
While public company results help gauge the startup landscape, Databricks occupies a unique position as a large private entity. Ghodsi's insights suggest that both smaller startups and larger publicly traded firms dealing with AI are experiencing positive outcomes.
If this holds true, we can anticipate insightful updates from Alphabet and Microsoft. In the previous quarter, Microsoft credited its recent AI initiatives with contributing a single percentage point of growth in Azure, with expectations for this figure to rise to two percentage points in Q3.
The promising news from Databricks indicates that companies are developing more substantial AI applications compared to just a few months ago. Ghodsi likens the debut of ChatGPT to an "iPhone moment," with businesses now eager to create applications reminiscent of the early wave of flashlight apps following the iPhone's launch.
Companies are increasingly asking Databricks, “What unique data do we possess that our competitors don’t? How can we leverage this strategically to gain a competitive advantage?” Ghodsi points out that after nine months, businesses are becoming more strategic about AI endeavors, avoiding arbitrary implementations. While success in large enterprises can be time-consuming, he is optimistic about the overall direction.
This is promising news for AI startups, suggesting that more advancements are on the horizon. Databricks is experiencing strong market signals, yet we should expect hard results and insights about future demand from the leading players in Azure, AWS, and Google Cloud.
As these major cloud companies invest billions into AI-related computing capabilities, the returns should begin manifesting soon. We won't have to wait long—results will be revealed later today, and we’ll see how much momentum these companies have gained and what lies ahead.
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