Big Tech Leans on AI to Stabilize After Brutal Year

It has been a challenging period for even the largest players in the tech industry.

But this week’s earnings show that sector leaders like Amazon, Microsoft, Alphabet, and Meta are adjusting to macroclimate headwinds and mixed economic signals by taking actions to optimize headcount efficiencies, steady their balance sheets, and double-down on future-fit innovations in generative artificial intelligence (AI) and machine learning (ML).

This, as “AI” was mentioned more than 200 times on earnings calls by Meta, Microsoft and Alphabet.

Amazon was no slouch in the AI department either, with CEO Andy Jassy saying on Thursday’s Q1 2023 earnings call that the company was working on an improved large language model (LLM) to power its smart assistant Alexa.

“I think that’s going to really rapidly accelerate our vision of becoming the world’s best personal assistant. I think there’s a significant business model underneath it,” Jassy said.

The large tech companies saw their shares respective jump after modestly surpassing Wall Street expectations, with Meta, in particular, leaping up 14% Thursday (April 27) after reporting its first quarterly revenue growth in nearly a year.

The tech giants have also reduced their headcount by a collective tens of thousands in recent months while spending billions on share buybacks.

Still, despite its peers’ performance, the market expects Apple, which reports its second-quarter 2023 earnings next Thursday (May 4), to deliver a year-over-year (YoY) decline in earnings as well as lower revenues when it holds its call.  

Can Big Tech Find Money in Machine Learning Models Despite Macro Challenges

Inflation and rising interest rates, as well as a mini banking crisis in the first quarter of 2023, have dampened the economy and prompted many customers to scale back their spending on the cloud infrastructure support and services that form a critical growth flywheel for tech giants like Amazon, Microsoft, and Google.

All three businesses reported slower growth in their cloud business in the final quarter of 2022, though 2023’s first quarter did see some bright spots for certain players.

“Customers are looking for ways to save money,” Amazon’s Jassy told investors.

Amazon Chief Financial Officer Brian Olsavsky separately noted that enterprise retreat on cloud spending is ongoing, with Amazon’s cloud services business seeing revenue growth rates already 5% lower in April than in March.

For its part, Alphabet’s own cloud business reported a profit for the first time since its launch, raking in $191 million for 2023’s first quarter.

But the overall focus remained on AI.

Read More: Companies Tap Their Own Data to Drive Efficiencies With AI

“We have had pretty substantial investment in machine learning for 25-plus years at Amazon,” said Jassy. “It fuels our personalized eCommerce recommendations. It drives the pick paths in our fulfillment centers. We have it in our ghost stores, we have it in our Prime, our drones, it’s obviously in Alexa and AWS.”

Facebook-parent Meta founder and CEO Mark Zuckerberg told investors that, “A narrative has developed that we’re somehow moving away from focusing on the metaverse vision, so I just want to say up front that that’s not accurate. We’ve been focusing on both AI and the metaverse for years now, and we will continue to focus on both.”

He added that, in his view, progress in the metaverse and generative AI are connected in key ways, noting that “metaverse technologies will also help deliver AI. For example, embodying AI agents will take advantage of the deep investment that we’ve made in avatars over the last several years.”

See AlsoMeta Says Generative AI and the Metaverse Will Evolve Together

The Meta leader emphasized that already, “more than 20% of the content in your Facebook and Instagram feeds are recommended by AI from people, groups or accounts that you don’t follow. Across all of Instagram, that’s about 40% of the content that you see.”

Google-parent Alphabet’s CEO, Sundar Pichai, told investors on his company’s earnings call that the “opportunity in AI is as big as the shift from desktop to mobile computing.”

Pichai underscored that the potential of AI’s far-ranging applications was “incredible” for consumers, partners, and Alphabet’s own internal business operations.

The company is leveraging AI applications across the majority of its product lines, including advertising and YouTube shorts and reflecting DeepMind’s increasing AI-driven collaboration with Google Services, Google Cloud, as well as Other Bets moonshots.

PYMNTS has previously reported on how Google is planning to add generative artificial intelligence (AI) to its advertising operations.

During its own fiscal earnings call on Tuesday (April 25), Microsoft Chairman and CEO Satya Nadella highlighted how the computing giant is bringing advanced Generative AI to clients through the “multiyear, multibillion-dollar investment” announced between OpenAI and Microsoft in January.

What does it all mean for Apple?

Famously close-lipped about its plans, industry observers believe it to be very likely that Apple is working on LLM-based improvements for its own voice assistant, Siri.

The tech giant’s strength is its ubiquitous hardware product lines, but it is likely feeling the heat from the AI advances its peers are making — as every major tech company besides Apple has announced their own LLM.

Generative AI and Microsoft MSFT

Generative AI is having transformational impacts on Microsoft, which is infusing its entire product suite from Dynamics 365 to Azure to Teams and beyond with integrations and enhancements are driven by the powerful capabilities of new world-changing AI technology.

During its fiscal 2023 third-quarter earnings call on Tuesday (April 25), Microsoft Chairman and CEO Satya Nadella recited a litany of use cases and partnerships illustrating how the computing giant is bringing advanced Generative AI to clients through the “multiyear, multibillion-dollar investment” announced between OpenAI and Microsoft in January.

He added that “when people use these new AI features, their engagement with Bing and Edge goes up. As we look towards a future where chat becomes a new way for people to seek information, consumers have real choice in business models and modalities with Azure-powered chat entry points across Bing, Edge, Windows and OpenAI’s Chat GPT. We look forward to continuing this journey in what is a generational shift in the largest software category, search.”

For example, he said Unilever “went all in on Azure this quarter” in one of the largest ever cloud migrations in the consumer goods industry, adding that “IKEA retail, ING Bank, Rabobank, Telstra, and Wolverine Worldwide all use Azure Arc to run Azure services across on-premise, Edge and multi-cloud environments, with the Azure Arc user base up over 150% year over year.

Alphabet in the AI Race

Pichai says the opportunity in AI is as big as the shift from “desktop to mobile computing.”

However, industry observers believe Alphabet and Google has admittedly lost round one of the generative AI battle to ChatGPT and OpenAI. At the same time, its search business continues to feel the heat from competitors like Microsoft.

Pichai disagrees, telling investors on Tuesday’s (April 25) first quarter 2023 earnings call that “advancements in AI are driving [Alphabet’s] opportunity” and calling the potential of their far-ranging applications “incredible” for consumers, partners, and Alphabet’s own internal business operations.

For the first time since its launch, Alphabet’s cloud business reported a profit, raking in $191 million for the quarter.

PYMNTS has previously reported on how Google is planning to add generative artificial intelligence (AI) to its advertising operations.

“It is an exciting time, and we see an opportunity across the breadth of what we do at Google to improve experiences using AI,” Pichai told investors on Tuesday’s call.

Pichai called AI and its implications across business and society “more profound than fire or electricity” in a televised interview earlier this month.