Big tech strives to satisfy investor hunger for AI profits

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The valuations of Meta, Amazon, Alphabet and Apple, all part of the so-called Magnificent Seven, diverged this week as the Big Tech groups strived to impress Wall Street and convince shareholders that years of unproven bets on the metaverse and costly investments in AI would deliver results.

Meta agreed to its first ever dividend payout for investors, indicating that Mark Zuckerberg, chair and CEO of Facebook, Instagram and WhatsApp’s parent company, is more willing to play by Wall Street’s rules to secure the investment needed for its metaverse and generative AI projects. In response, Meta saw its shares jump 21 per cent as investors reacted excitedly to the potential dividend payouts of up to $86bn in 2024 and a $50bn share buyback programme.

Amazon shares were up 7.3 per cent in early trading today. This is thanks to a robust holiday season for the retail giant and a 13 per cent increase in sales to $24.2bn within its cloud computing division AWS in the three months to December. Meta and Amazon are on course to gain a combined $293bn in market capitalisation on Friday.

Microsoft’s cloud revenues also rose 20 per cent to $25.9bn in the final quarter of 2023, while Alphabet’s Google Cloud services business reported revenue of $9.2bn, a 26 per cent rise from the same period last year. Despite Microsoft and Google both reporting strong quarterly results earlier this week, Alphabet, Google’s parent company, saw its shares fall more than 8 per cent since the results. Alphabet narrowly missed forecasts for growth in its advertising business, which accounts for almost 80 per cent of its top line.

Both Alphabet and Microsoft warned that capital expenditure would be higher in 2024 as they make yet more significant investments in data centres and servers to compete in the arms race to develop cutting-edge generative AI technology.

Investors await the launch of Alphabet’s AI Gemini Ultra, as well as more concrete evidence that AI integrated services will transform into serious financial gains. The shares of Apple and Alphabet are the worst performing of the Big Tech companies to have reported this week. Their combined market capitalisation has fallen $334bn since Monday.

Apple is set to launch its Vision Pro headset in the US today, marking its most significant product release since the Apple Watch and the culmination of CEO Tim Cook’s boldest project since taking over from co-founder Steve Jobs in 2011.

Despite Apple’s revenue growth to $119.6bn, marking a 2 per cent increase and breaking a four-quarter decline, concerns loom over a significant sales drop in China, amid geopolitical tensions and competition from Huawei. Its shares fell despite Apple’s overall strong performance and record earnings from its services division.

Need to know: UK and Europe economy

The Bank of England held UK interest rates at 5.25 per cent yesterday, despite progress on taming inflation. BoE governor Andrew Bailey said: “We need to see more evidence that inflation is set to fall to the 2 per cent target.”

In the eurozone, inflation fell to 2.8 per cent in January after a brief uptick to 2.9 per cent in December. The renewed decline looks set to strengthen investors’ expectations that the European Central Bank could cut interest rates as early as this spring.

More than 1.1mn UK taxpayers missed the January 31 self-assessment filing deadline. This marks a 10 per cent rise on last year, according to data from the tax authority, with the fines expected to generate at least £110mn for HMRC.

The EU has agreed a deal with Hungary’s Viktor Orbán on a €50bn financial aid package for Ukraine. The compromise came after an unprecedented campaign of pressure on the Hungarian prime minister.

Deutsche Bank announced plans yesterday to “accelerate” payouts to shareholders and said it was on target to beat a target of returning €8bn by 2025.

Need to know: global economy

US jobs growth last month outstripped estimates as the economy added 353,000 jobs, almost twice as many as the 180,000 jobs expected by economists.

The US Federal Reserve remains cautious in its quest to bring inflation under control. While Fed chair Jay Powell made clear interest rate cuts are coming, they’re unlikely to arrive by the Fed’s next meeting in March, he said.

America’s oil supermajors ExxonMobil and Chevron have announced their second-biggest annual profits in a decade despite a slide in energy prices. Exxon posted full-year net income of $36bn while Chevron followed with $21.4bn. The results come a day after Shell announced $3.5bn of share buybacks after reporting annual profits for 2023 of more than $28bn.

Nigeria has devalued its currency for the second time in eight months. The naira lost nearly 40 per cent of its value against the dollar after the methodology used to calculate the official exchange rate was changed.

Nuclear power projects are typically racked by technical issues, staff shortages and supply-chain disruptions. The International Energy Agency says nuclear projects starting between 2010 and 2020 are on average three years late, even as it forecasts nuclear power generation will hit a record high next year.

Need to know: business

Superdry co-founder and chief executive Julian Dunkerton is in discussions with a number of potential financing partners. After reports of a potential takeover, Superdry said on Friday, “These discussions are at a preliminary stage and no decisions have been made.”

BAE Systems has bought a UK technology specialist developing “heavy-lift” drones capable of delivering supplies or evacuating troops. The Berkshire-based Malloy Aeronautics has been bought by the FTSE 100 defence group for an undisclosed sum.

The Singapore-based fast-fashion company Shein has been accused of breaching its own legal settlements and continuing to sell copycat items despite pledging to stop.

Tesla is issuing a software fix for 2.2mn of its vehicles over a small font size on warning lights. The font size, according to the US National Highway Traffic Safety Administration, “can make critical safety information difficult to read.” This is the latest setback at the end of a difficult week for the US vehicle maker. Its boss Elon Musk said yesterday that Tesla would “immediately” hold an investor vote on whether to move its corporate registration to Texas after a court judgment in Delaware voided his $56bn pay package.

Science round up

Japan brought back to life a spacecraft that lost power after landing upside down on the Moon. Japan is the fifth nation to land on the moon after the Soviet Union, the US, China and more recently India, but the feat was undercut by a power problem that threatened to jeopardise the mission.

Philanthropist Nicole Shanahan is spending $100mn to unlock so-called reproductive longevity which involves slowing the ageing process of ovaries, enabling women have children for longer.

Scientists have shed new light on how Alzheimer’s spreads through the brain and found the first evidence of transmission between people, via a now-banned human growth hormone extracted from cadavers.

Crispr gene editing has been used for the first time to treat sufferers of angioedema, a debilitating hereditary swelling disorder, fuelling hopes that the pioneering technique will be able to combat a wide range of diseases. 

Science commentator Anjana Ahuja says the EU risks losing out in the race to transform agriculture through the gene-editing of crops as scientists in Africa and elsewhere forge ahead.

Neuralink cofounder Elon Musk said his company has conducted its first brain-computer interface implant on a person.

Some good news

Sea otters are helping to keep the shores of a central Californian estuary from crumbling into the ocean — by feasting on shore crabs. The crustaceans’ vegetation-munching habits and burrowing contribute to unstable salt-marsh banks.

Source: Economy - ft.com