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Navigating the AI Storm: Tech Giants Face Pressure to Translate Hype into Profits

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Investors are eager to understand the tangible impact of AI on financial outcomes, but amidst this curiosity, three significant events have unfolded today: Salesforce’s announcement of cutting around 700 jobs, BlackBerry’s stock hitting a 20-year low, and US intelligence agencies expressing interest in leveraging AI.

Tech Giants in the Spotlight Due to AI

Despite the year-long buzz around how artificial intelligence will revolutionize tech businesses, the actual translation of this excitement into profits remains unclear. The focus now turns to Microsoft Corp. and Alphabet Inc., the two major players in the AI landscape, as they report earnings this week.

Daniel Morgan, a senior portfolio manager at Synovus Trust Co., notes the pressure on Microsoft and Alphabet to demonstrate concrete evidence of the returns on their AI investments. This situation parallels the early days of cloud computing, where companies like Amazon, Microsoft, and Oracle eventually disclosed their cloud sales in response to investor demands.

While Nvidia Corp. can attribute its AI success to the H100 product, Alphabet and Microsoft integrate AI throughout their businesses, making it challenging to isolate AI-driven sales. Google’s cloud computing division, however, exhibited AI’s impact by reporting a profit last year, driven by increased business from AI startups.

Microsoft, having committed $10 billion to OpenAI a year ago, strategically incorporated AI-powered tools into its product line, introducing Copilot, an AI-powered assistant for Windows and Office apps. Analysts await Microsoft’s financial results to gauge the adoption curve of Copilot, a move that contributed to Microsoft’s market capitalization surpassing $3 trillion.

Google’s Pursuit

Google, in pursuit of catching up, invested in Anthropic Pbc, an OpenAI rival, released a chatbot, and unveiled its powerful language model, Gemini. The challenge now is for Google to showcase the tangible outcomes of these initiatives. An analysis suggests Gemini alone could generate approximately $1 billion in revenue from licensing.

Regardless of the timeframe for AI to impact earnings, tech companies are resorting to another financial tool—layoffs—as they strive to navigate the evolving landscape of artificial intelligence.