The market reaction to the third quarter results of the US technology giants was mixed. Explanation.
Indeed, the high valuation of technology companies and persistent geopolitical tensions in the Middle East are all factors that have undermined investor morale.
However, the detail of the results of the technological giants reinforces the idea that the theme of the rise of artificial intelligence (AI) remains intact. UBS Research raised its profit growth forecast for international technology companies from 20% to 22% in 2024 and raised its forecast for 2025 from 16% to 18%.
AI spending should support bet on AI values
Microsoft, Alphabet, Amazon and Meta account for almost half of total AI spending. The strong balance sheets of these companies, as well as their willingness to invest, should continue to fuel strong growth in AI spending.
In fact, UBS Research has further revised upwards its investment forecasts by technology giants following the recently released quarterly results. Now, it expects growth of 50% this year, to $222 billion, then an additional 20%, to $267 billion in 2025.
Cloud technology giants’ revenue growth accelerated for the fourth consecutive quarter during the July-September period and margins remain comfortable.
Assuming that capital intensity (investment relative to turnover) reaches its peak for each company, total investment spending could reach $280 billion. Its estimate is therefore likely to be revised upwards again.
AI Adoption and Monetization Has Further Accelerated
Cloud technology giants’ revenue growth accelerated for the fourth consecutive quarter during the July-September period and margins remain comfortable.
Amazon CEO Andy Jassy has suggested that he expects his investments in generative AI to make a return (both from an operating profit and free cash flow perspective). Other members of management also reported progress in AI adoption and the resulting efficiencies.
Alphabet Chief Executive Sundar Pichai said more than a quarter of new lines of code at Google are generated by AI, allowing the company’s engineers to “do more and go faster. His Microsoft counterpart, Satya Nadella, highlighted the growing adoption of co-pilots “by customers across all industries.”
Mixed results attributable to segments such as PCs and smartphones
UBS Research highlighted the growing divergence within the technology sector between companies riding strong structural trends in AI and those, like Apple and Samsung Electronics, having to navigate the recovery. sluggish demand for consumer technologies.
In particular, Apple expects at most a growth of 5 to 6% in its turnover in the fourth quarter, which contrasts with the growth of 20 to 25% expected for the main cloud platforms exposed to AI.
Global cell phone shipments exhibit high sensitivity and close correlation to global real GDP growth. Therefore, weaker-than-expected growth in the global economy next year could further weigh on demand for consumer technology products.
Take advantage of bouts of volatility
Thus, without going so far as to formulate opinions on specific securities, optimism is required with regard to AI and we can recommend that investors take advantage of bouts of volatility to gain sufficient exposure to quality stocks. in this area, with always a preference for certain semiconductor stocks and technological giants.
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