Microsoft and Alphabet's earnings show that AI is more than just hype

Both Alphabet (GOOG, GOOGL) and Microsoft (MSFT) reported quarterly results that beat Wall Street estimates. The big takeaway from both reports? This generative AI is here and companies are spending on it, say Baird Technology Desk sector strategist Ted Mortonson and RBC Capital Markets software equity analyst Rishi Galloria.

“I think the commentary from both Google and Microsoft tells us that there is real demand for AI… There is actual money being put behind this. It's not just hype. And people aren't just talking about it. There's actual capital being 'put into play,'” Galloria tells Yahoo Finance's Morning Brief.

Mortonson agrees. “We're already in the process of building generational infrastructure,” Mortonson says, adding that both Microsoft and Alphabet have an “advantage” because “their data center footprint is already there.”

Galloria notes that investors “will be patient” with Microsoft's heavy infrastructure spending as long as the company's AI-related businesses continue to show growth. As for why investors aren't happy about Meta's (META) spending on AI, Mortonson thinks it may come down to a “positioning game.” “The meta was very crowded before print,” Mortonson says. “There were some people who, quite frankly, didn’t like some of the unprofitable spending.” He thinks Meta is “very attractive” given how sensitive the stock is to its results, but Microsoft has a “huge advantage” because of its trading business.

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This post was written by Stephanie Mikulic.

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