The Stock Market's Most Important Day of the Quarter Has Arrived
The five largest AI hyperscalers -- Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), and Oracle -- reported about $414 billion in capital expenditures last year, up 70% from the prior year. Those companies expect capital expenditures to climb nearly 70% to $700 billion this year. Whether this spending ultimately leads to greater profitability depends on the extent to which customers adopt AI software and services.
Investors will focus on today’s earnings reports from four of these hyperscalers: Alphabet, Amazon, Meta Platforms, and Microsoft. Alphabet’s revenue is expected to increase 19% to $117.2 billion, with GAAP earnings dropping 7% to $2.62 per share. Investors will watch Google Cloud, where sales growth has accelerated due to strong demand for Gemini models and custom AI chips (TPUs).
Amazon’s revenue is expected to rise 21% to $188.9 billion, with GAAP earnings increasing 3% to $1.65 per share. Investors will look for margin expansion in e-commerce and strength in cloud computing, which saw 24% growth in the fourth quarter—the fastest in three years.
Meta Platforms’ sales are projected to grow 31% to $55.5 billion, with GAAP earnings increasing 5% to $6.74 per share. Investors will assess the impact of Meta’s AI investments, including its newest model, Muse Spark, on engagement and financial performance.
Microsoft’s sales are expected to increase 16% to $81.3 billion, with non-GAAP earnings rising 17% to $4.06 per share. Investors will scrutinize Microsoft’s monetization of Copilot 365 and Azure’s sales growth, amid competition from Anthropic and OpenAI.
Wall Street anticipates muted earnings growth due to heavy AI infrastructure investments compressing profit margins. Investors will seek reassurance that these investments will eventually boost profitability. A sharp decline in the S&P 500 could occur if these companies fail to address lingering doubts.
Additionally, the Federal Reserve’s interest rate decision today may impact the market. With inflation reaccelerating since the Iran conflict, the odds of a rate cut are near zero. Investors will closely monitor Chair Jerome Powell’s remarks for clues about future rate moves, which could drive the S&P 500 down if a rate increase is signaled.
Source: The Motley Fool