Artificial intelligence is expected to once again take center stage as the nation's largest technology companies begin reporting quarterly results on Tuesday.
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Three months ago, Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and others battled for AI mentions and saw stocks pop on promises for future earnings. This quarter, investors will be more keen on hearing about the timing by which those promises can be delivered.
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"Everybody can talk the marketing spin, but I need to see some tangible impacts on the P&L," Paul Meeks, Independent Solutions Wealth Management portfolio manager, told Yahoo Finance Live. "You better give that to me. At least guide to it for the next couple of quarters because I'm going to start to believe that it's all smoke."
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Microsoft, Alphabet, and Meta are all expected to report earnings this week and provide updates on their plans for AI after buzz over the technology sent their stocks soaring through the first half of 2023.
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ChatGPT sparked the AI conversation with its launch last November, and Microsoft and Alphabet quickly advanced the conversation with their plans for how the technology could reinvent search. Then, when the companies reported first quarter earnings in the spring, AI exuberance fully took hold.
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Microsoft mentioned AI more than 50 times on its earnings call. Google called it out more than 100 times at an event in May. Even Coca-Cola said it was "exploring ways to leverage AI."
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Nvidia's AI callout proved to be the most monumental. The chipmaker noted the technology could boost the next quarter's earnings by roughly 50% more than initially anticipated.
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That sent tech stocks soaring higher, and AI became a common refrain in research notes as strategists boosted their full-year outlooks for the S&P 500.
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"We think investors' enthusiasm about AI has room to grow even further over the next couple of years," Capital Economics senior markets economist Thomas Mathews wrote in June.
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A recent check of AI hype shows Mathews's take is still on point. Last week, a Bloomberg report about Apple working on its own form of ChatGPT sent the stock up about 1%. A day before, Microsoft shares rose about 4% as the company announced pricing for its M365 Copilot AI product. Both stocks finished at all-time highs on the day the developments broke.
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In a Microsoft earnings preview that included a price target boost to $400 from $350 due to the tech giant's latest AI innovation, Goldman Sachs managing director Kash Rangan wrote how much companies attribute growth to AI will be in focus.
"After a year of downward estimate revisions, we see investors being particularly receptive should Microsoft guide to a solid double-digit revenue clip in FY24," Rangan wrote on July 21. "We expect the level of attribution management will credit to Gen-AI to be of particular focus as the market looks to validate the spending curve of this innovation cycle."
But questions are still swirling around whether technology stocks have been overbid amid the AI craze. Early tech earnings reports last week showed investors were quick to dump tech stocks if the earnings announcements didn't have the right mix.
Both Tesla and Netflix fell nearly 10% in the day following their earnings reports as investors focused on Tesla's shrinking margins and Netflix's revenue coming in weaker than expected.
"This may be telling as to how high the bar really is to support current valuations,"Citigroup managing director Scott Chronert wrote in a note on Friday. "Next week we may need to see strength across line items and a guidance lift to maintain index-level momentum."
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