Wall Street was able to breathe a sigh of relief on Tuesday as Google-parent company Alphabet and Microsoft beat the market's relatively modest earnings expectations. The companies saw big boosts from their search and cloud computing businesses.
After a disastrous year for both stocks, the shares rebounded strongly in the first quarter.
And so, with immediate concerns out of the way, executives at Microsoft and Alphabet focused their remarks during earnings calls on what excites them most: Artificial intelligence.
Microsoft, Google and a number of smaller rivals are in a race to integrate generative artificial intelligence technology (similar to ChatGPT) into their search functions and other applications.
Both companies see it as an integral part of their future, but it was apparent on Tuesday that Microsoft and Google aren't in agreement about what that future will look like.
Analysts have expressed worry that Google is falling behind the competition when it comes to AI innovation. In March, Google introduced an AI chatbot named Bard, which met mixed reviews.
Google's search engine has dominated the market for two decades, with Microsoft's Bing struggling to gain market share. But the viral success of ChatGPT, which can generate compelling written responses to user prompts, appeared to put Google on defense for the first time in years.
Microsoft has invested in and partnered with OpenAI, the company behind ChatGPT, to deploy similar technology in Bing and other productivity tools.
Google CEO Sundar Pichai told analysts on his earnings call Tuesday that artificial intelligence marks a massive potential opportunity for the company, comparing it to the "successful transformation we made from desktop to mobile computing a decade ago."
He said the company plans to integrate comparable generative AI tools into its search and cloud operations, but struck a balanced tone.
"Throughout the years, we have gone through many, many shifts in search," he said.
Pichai also hinted at concerns about the potential for generative AI tools to spread false information.
"We know that billions of people trust Google to provide the right information," he said.
Microsoft CEO Satya Nadella, meanwhile, was more effusive about the future of AI in an earnings call Tuesday, telling analysts that he sees AI as a tool that will revolutionize the way people search online.
Nadella said that app installations for Bing have gone up four-fold since it became AI-powered this February. "We look forward to continuing this journey in what is a generational shift in the largest software category – search," he said.
Shares of Microsoft were up about 8.5% in after hours trading on Tuesday. Shares of Alphabet were up 1.7%.
The numbers: Microsoft posted quarterly net income of $18.3 billion, up 9% year-over-year, and far exceeding expectations. The company also posted sales of $52.9 billion, up 7%.
Alphabet on Tuesday reported that profits fell slightly from the year-ago quarter to nearly $15.1 billion, or $1.17 per share, but still beat expectations. It was also much improved from the December quarter when profits fell by a third. The company posted $69.8 billion in revenue, up 3% from the same period in the prior year and also slightly ahead of expectations.
What's next: Facebook-parent company Meta reports first quarter earnings on Wednesday afternoon and Amazon reports Thursday. Apple is expected to report earnings next Thursday.
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