Results from Alphabet and Microsoft show that betting on AI has driven growth By Reuters

(Reuters) – Alphabet (NASDAQ:) and Microsoft (NASDAQ:) led a rally in technology stocks on Friday, with their results showing that big investments in artificial intelligence (AI) are driving growth, dispelling doubts that their far-from-cheap bets on technology would take time to bear fruit after a modest prediction from Meta.

Alphabet shares soared 10% and the company closed with a market value above $2 trillion for the first time, according to LSEG data, after announcing its first dividend and a $70 billion share buyback.

The world’s fourth most valuable company had flirted with the milestone more than three years ago on an intraday basis, according to data from LSEG Datastream.

Microsoft shares rose almost 2% and added around $54 billion to the company’s market value.

After investing billions of dollars in the infrastructure needed to support AI applications, both Alphabet and Microsoft reported that their quarterly revenue growth was exceeding expectations as more users turned to services like AI assistant Copilot. and the Gemini chatbot.

AI services were responsible for 7 percentage points of the 31% jump in revenue for Microsoft’s Azure cloud computing platform between January and March, according to the company’s chief financial officer, Amy Hood.

The executive added that the demand for AI in the short term was slightly greater than the company’s capacity, which slowed growth in the quarter, and highlighted the need for spending to expand its infrastructure.

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At Google, cloud revenue rose about 28%, with strong growth in Google Workspace, where the Alphabet unit offers a range of AI capabilities powered by its large Gemini language model.

The results contrasted with a warning of higher spending and lower-than-expected growth from social media giant Meta, whose shares plunged 10% on Thursday.

“This quarter illustrated how demand for generative AI remains high from Microsoft customers, and we continue to believe that Microsoft stands out as a leader in this generative AI environment,” said Gil Luria, analyst at DA Davidson.

“Meta is indicating that the results of larger investments may be years away, while Microsoft and Google are showing them now.”

The results also drove a 3.4% increase in shares of Amazon.com (NASDAQ:), which will report its earnings on Tuesday.

(Reporting by Gokul Pisharody and Siddarth S in Bengaluru and Samuel Indyk in London; additional reporting by Yuvraj Malik)