As tech behemoths prepare to report results this week, they face a mound of controversy.
Google has experienced protests and restructurings, while Tesla recently announced layoffs, price cuts, and a Cybertruck recall. Microsoft’s collaboration with OpenAI is under examination, while Facebook parent Meta’s recent rollout of its AI assistant was not successful.
The worrying news comes amid a generative AI gold rush, with Big Tech companies racing to incorporate the new technology into their massive portfolios of products and features to avoid falling behind in a market expected to exceed $1 trillion in revenue within a decade.
Wall Street has been publicly concerned about the approaching results, with the tech-heavy Nasdaq Composite falling 5.5% last week, the worst weekly drop since November 2022. Nvidia, a popular AI company, fell 14%, leading the decline.
“Whether this tech sell-off continues, I think really depends on how the mega-cap tech reports,” said King Lip, chief strategist at BakerAvenue Wealth Management, during an interview with CNBC’s “Closing Bell” on Monday. “Valuations have definitely been more reasonable now, now that we’ve had a little bit of a correction.”
Lip stated that in the last few weeks, his company had “trimmed some of our tech exposure.”
Tech corporations have been pouring record amounts of money into developing generative AI startups, as well as aggressively investing in Nvidia processors for building AI models and running enormous workloads. While that industry is expanding rapidly, investors are concerned that other difficulties may lead to a reduction in spending.
Companies are expected to highlight their attempts to cut costs and boost profits on this week’s earnings calls, continuing an efficiency theme that has persisted in the business since early last year.
Tesla’s tech earnings season begins after the close of trade on Tuesday, with shares of the electric vehicle company falling at their lowest level since January 2023. Meta, which recently had its largest weekly stock drop since August, will follow on Wednesday. Microsoft and Alphabet, the parent company of Google, will report on Thursday, providing Wall Street with a close look at how firms are planning their AI infrastructure budgets.
Here are some of the major challenges raised by Big Tech companies in their reports this week.
Tesla shares plummeted for the seventh day in a row on Monday, bringing their year-to-date decline to 43%. Elon Musk’s EV company is set to disclose a 5% dip in sales, marking the first year-over-year revenue decline since 2020, when the Covid epidemic crippled operations.
Tesla’s earnings come after a devastating quarterly deliveries report and more price cuts for the company’s vehicles and premium driver assistance system.
Last week, the EV producer announced the layoff of more than 10% of its personnel, on the same day that executives Drew Baglino and Rohan Patel announced their exits.
“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” Musk wrote in a message announcing the layoffs.
Two days later, Musk notified staff via email that the business had issued “incorrectly low” severance compensation to some laid-off employees. On April 12, Tesla voluntarily recalled more than 3,800 Cybertrucks to address a “stuck pedal” issue shown in a viral TikTok video.
“Since late 2023, sentiment toward Tesla (TSLA) has deteriorated,” wrote John Murphy, an analyst at Bank of America, in a report on Monday.
Despite last week’s decline, Meta has shown to be a smart investment this year. The stock is up 36% in 2024 after nearly tripling last year, when CEO Mark Zuckerberg promised Wall Street that 2023 would be the company’s “year of efficiency.”
But Meta still has a lot of questions. For starters, its Reality Labs subsidiary, which holds all of the virtual reality technologies for the emerging metaverse, is likely to post a quarterly loss of more than $4 billion for the second consecutive quarter.
In terms of artificial intelligence, Meta launched its assistant, Meta AI, on WhatsApp, Instagram, Facebook, and Messenger last week. It was the company’s largest AI endeavor to date, and it will compete with OpenAI’s ChatGPT and Google’s Gemini.
However, Meta AI rapidly sparked criticism. The assistant apparently joined a private Facebook parents’ group and claimed to have a gifted and impaired child, commenting on their experiences with New York-area educational programs. In another case, it allegedly joined a Buy Nothing site and attempted to conduct free giveaways for nonexistent things.
Now, Meta must demonstrate that it is prepared for what is sure to be a tumultuous election season, as President Joe Biden and Republican Donald Trump prepare to face battle for the second time. Since Donald Trump’s successful presidential campaign in 2016, Facebook has been a hotbed of political conversation and misinformation.
According to LSEG, Meta’s revenue is predicted to increase by 26% over the previous year to $36.16 billion. That would be the quickest pace of growth in any time since 2021.
On a hectic Thursday for tech results, Alphabet is sure to receive the most attention.
Last week, finance director Ruth Porat revealed a restructuring of Google’s finance department, which will include layoffs and relocations as the business invests more resources in AI.
Google fired 28 employees on the same day, according to an internal document seen by CNBC, in response to a series of protests about working conditions and the company’s deal to supply cloud computing and artificial intelligence services to the Israeli government and military.
The dismissals come after nine Google employees were detained on trespassing charges Tuesday night while conducting a sit-in at the company’s offices in New York and Sunnyvale, California, which included a demonstration in Google Cloud CEO Thomas Kurian’s office. The arrests, which were livestreamed on Twitch by participants, occurred alongside rallies outside Google offices in New York, Sunnyvale, and Seattle, which drew hundreds of people, according to workers engaged.
Alphabet CEO Sundar Pichai announced on Thursday the unification of the company’s AI teams, including responsible AI and associated research teams, under the Google DeepMind umbrella. He stated in a memo that “this is a business” and that staff should not “attempt to use the company as a personal platform, fight over disruptive issues, or debate politics.”
Pichai has struggled to calm employee unrest on a variety of issues since the epidemic, as the firm has been forced to deal with slower growth than in previous years and an investor base that is increasingly concerned about costs.
Analysts predict a 13% increase in first-quarter revenue, marking the second consecutive quarter of year-over-year growth in the low teens. Between mid-2022 and mid-2023, advertisers pulled back due to skyrocketing inflation and rising interest rates, resulting in four consecutive periods of single-digit growth.
Alphabet shares are up 12% this year, outperforming the S&P 500, which has up 5.1%.
Microsoft appeared to barely avoid a European Union antitrust investigation into its partnership with OpenAI, after EU investigators raised the potential earlier this year.
Microsoft invested over $10 billion in OpenAI, whose ChatGPT chatbot sparked the generative AI boom in late 2022. AI has been a prominent focus of Microsoft’s earnings calls since then, as the business is OpenAI’s principal technological partner via its Azure cloud infrastructure.
Microsoft has also invested billions of dollars in AI firm Anthropic and has investments in Mistral, Figure, and Humane.
The corporation’s success in AI has led to a $3 trillion market capitalization, surpassing Apple as the most valuable company in the United States. However, the stock is only up 6.8% this year, underperforming many of its peers, and some analysts predict possible weakness in certain segments of Microsoft’s customer base, particularly small and medium-sized enterprises.
“MSFT has more SMB and consumer exposure than any other stock we cover,” noted analysts at Guggenheim in a report on April 21. “And while those cohorts have held up surprisingly well during this soft macro period, we are starting to see some indications of weakening demand from them.”
According to LSEG, Microsoft is predicted to achieve 15% sales growth in the first quarter, but analysts predict a drop in each of the next three quarters.
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