Microsoft and Alphabet Fail to Show at the AI Party

tech.hindustantimes.com:

Artificial intelligence is the buzziest of buzz words on Wall Street. Apart, that is, for the two firms that are seen to be at the cutting edge of the technology.

While the likes of Nvidia Corp. and lesser-known AI plays have soared on the back of excitement over the potential boost to their business, Microsoft Corp. and Google parent Alphabet Inc. have underperformed this year.

Their stock lethargy reflects both payback from AI investment that will likely be slower than for others, as well as the tougher backdrop for tech shares more broadly as the Federal Reserve aggressively raises interest rates to combat inflation. Both are up roughly 5% this year, not even half the gain of the Nasdaq 100 Index and far behind the nearly 60% surge in Nvidia, which is expected to see a more immediate impact as its graphics chips are used in powering AI applications. C3.ai Inc. is up more than 120% this year, including a gain of 17% on Friday after its revenue topped expectations.

“If you're only buying Microsoft and Alphabet for AI, you might be disappointed by how slowly it rolls out and translates to revenue growth,” said Gregg Abella, chief executive officer of Investment Partners Asset Management. “The rate environment is less favorable, and while earnings are robust, they're not as exciting as they used to be in terms of growth.”

Microsoft and Alphabet are focusing on AI's applications in search, which while it could be a long-term growth driver, is also expensive to develop. The former is investing $10 billion in OpenAI, and recently unveiled a new version of its Bing search engine and Edge browser that incorporate the technology. Google is also integrating AI into search.

“These companies are walking a delicate tightrope