Live Updates: Microsoft and Google shares pop after earnings results

Google CEO Sundar Pichai told analysts on an 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."

Google in March launched its AI chatbot Bard, and Pichai said the company plans to find ways to incorporate similar generative AI tools into its search and cloud businesses. Since its launch weeks ago, Google has already incorporated programming and software development tools into Bard.

Pichai also hinted at concerns that some in the tech space have about the potential for generative AI tools to spread false information.

Google spent much of the past quarter trying to demonstrate that it hadn't fallen behind the competition in generative AI, after rivals OpenAI and Microsoft beat it to launching popular AI chatbots.

Shares of Microsoft and Google-parent Alphabet rose by 4% and 3%, respectively, in after hours trading Tuesday following the companies' stronger-than-expected earnings results for the March quarter.

After posting a steep decline in profits during the final three months of 2022, Google-parent Alphabet appears to have stabilized its business at the start of this year. 

Alphabet on Tuesday reported that profits from the first quarter 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 Alphabet reported profits had fallen by a third.

The company posted $69.8 billion in revenue for the first quarter, up 3% from the same period in the prior year and also slightly ahead of the $68.9 billion analysts' had projected.

Shares of Alphabet rose 3% in after hours trading following the results.

Like other tech companies, Google has been forced to take significant steps to cut costs in the face of broader economic uncertainty and tightening advertiser budgets.

In January, Alphabet announced plans to eliminate 12,000 jobs and begin rethinking its real estate footprint to cut expenses. On Tuesday, Google said it had incurred $2.6 billion in charges during the quarter from "related to reductions in our workforce and office space."

But at the same time, Alphabet has continued to invest in cloud computing and its core search engine, including by rolling out new AI-powered tools in an effort to keep pace with a renewed arms race over the technology. "We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud," CEO Sundar Pichai said in a statement.

Its core ad business also appears to have fared better than some analysts feared, despite concerns about a potential recession. Google posted advertising sales of $54.5 billion for the quarter, down less than 1% from the year-ago quarter.

Alphabet's board has also authorized a share repurchase plan of as much as $70 billion, which may have also buoyed shares.

A strong performance from Microsoft's cloud computing division boosted the company's earnings for the first three months of the year, marking a turnaround from a disappointing December quarter.

Microsoft posted net income of $18.3 billion, up 9% year-over-year, and far exceeding expections

The company also posted sales of $52.9 billion, up 7% year-over-year and ahead of the $51 billion Wall Street analysts had expected.

Executives noted in a statement with the results that Microsoft's cloud computing business grew sales by 22% to $28.5 billion during the quarter, thanks in part to its investments in artificial intelligence.

Shares of Microsoft jumped more than 4% in after-hours trading Tuesday following the results.

"Tech investors are relieved to see that the slowdown across Microsoft’s key cloud business was not as bad as feared," Investing.com senior analyst Jesse Cohen said in a statement following the report. "The tech heavyweight is also benefiting from its growing involvement in the emerging artificial intelligence space."

Despite the strength of its cloud business, inflation and recession fears did appear to take some toll on Microsoft's earnings during the quarter. Sales from its "more personal computing" division, which includes Windows products, Surface devices and Xbox, fell 9% to $13.3 billion.

Microsoft in January joined other tech giants in announcing it would lay off 10,000 workers in an attempt to cut costs amid the challenging macroeconomic environment.

Wall Street analysts are expecting modest revenue gains and year-over-year profit declines from both Microsoft and Google-parent Alphabet for the first three months of the year, as the online advertising and enterprise software businesses continue to suffer amid recession fears.

Here's what analysts predict the two tech giants will report after the bell, according to consensus estimates from Refinitiv:

Microsoft

Revenue: $51 billion (+3.4% year-over-year)

Net income: $16.6 billion (-0.6% year-over-year)

Earnings per share: $2.23

Alphabet

Revenue: $68.9 billion (+1.4% year-over-year)

Net income: $13.7 billion (-16.9% year-over-year)

Earnings per share: $1.07

Microsoft and Google are locked in a renewed race to develop and deploy AI to supercharge their search and productivity tools. As they report earnings, investors will likely be looking for any early indications of how much those efforts are helping Microsoft and hurting Google.

Shares of Google-parent Alphabet fell earlier this month after a report sparked concerns that its core search engine could lose market share to AI-powered rivals, including Microsoft’s Bing.

Last month, Google employees learned that Samsung was weighing making Bing the default search engine on its devices instead of Google’s search engine, prompting a “panic” inside the company, according to a report from the New York Times, citing internal messages and documents. (CNN has not reviewed the material.)

Google’s search engine has dominated the market for two decades, with 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, meanwhile, has invested in and partnered with OpenAI, the company behind ChatGPT, to deploy similar technology in Bing and other productivity tools. 

But both companies face risks as they invest in generative AI. Google was called out after a demo of Bard provided an inaccurate response to a question about a telescope. Shares of Google’s parent company Alphabet fell 7.7% that day, wiping $100 billion off its market value.

Microsoft’s Bing AI demo was also called out for several errors, including an apparent failure to differentiate between the types of vacuums and even made up information about certain products.

With Microsoft, Alphabet, Amazon and Meta Platforms all slated to report earnings this coming week, investors are turning their attention away from bank earnings to Big Tech.

That’s because just a handful of large-cap tech stocks powered the S&P 500’s gains during the first quarter despite banking turmoil, uncertainty about the Federal Reserve’s plan to stabilize prices and recession fears. 

Companies including Facebook-parent Meta, Nvidia, Microsoft and Google-parent Alphabet surged at the beginning of this year, with that trend accelerating last month when large-cap tech names became havens for investors. The tech-heavy Nasdaq Composite is up over 15% this year.

But if they report disappointing results, warn of headwinds or give investors any other reason to sell, those stocks could start trending down — and so could the broader equity market.

The S&P 500’s rally has already started to peter out somewhat. The benchmark index closed 0.1% lower last week, after investors waded through mixed earnings reports and economic data that revealed a complicated picture of the economy’s health.

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UPS says the US economy is slowing down.

America’s largest trucking company said Tuesday that revenue fell 6% in the first quarter compared to a year earlier, as its operating profit fell 22%. Its earnings fell just short of Wall Street forecasts for the period.

“In the first quarter, deceleration in US retail sales resulted in lower volume than we anticipated, and we faced ongoing demand weakness in Asia,” said the company’s earnings statement. “Given current macro conditions, we expect volume to remain under pressure.”

The company said that while January volumes were about what it had expected, the macroeconomic environment weakened, causing a 7% drop in volume in March compared to a year ago. That acceleration in the drop in volume “caused us pause,” said UPS CEO Carole Tome.

Shares of UPS fell more than 6% in early trading on the news.