"The 'AI Three Giants' Performance is Coming! The Rise and Fall of the US Tech Industry Controlled by AI"

This week, the artificial intelligence (AI) industry will face a major test, and the market will focus on how AI is changing the American business world and bringing wealth to the big companies behind it. The "AI technology giants" - Microsoft (MSFT.US), Alphabet-C parent company Alphabet-C-C (GOOGL.US), and Meta Platforms (META.US) - will announce their first quarter earnings since the AI boom.

Microsoft's stock price soared 44% in 2023, setting multiple records, which will soon make it join Apple (AAPL.US) as one of the only two companies with a market value of $3 trillion. Meta, which has been deeply involved in the AI field for many years and leading global AI development, is one of the tech stocks that "rides the AI wave" this year. After entering 2023, Meta's stock price has been soaring, with a cumulative increase of over 140% so far this year. In comparison, Alphabet-C-C's increase is only 38%, slightly lower than the 41% increase of the Nasdaq 100 index. However, these three companies are considered early leaders in the promising field of artificial intelligence.

Microsoft and Alphabet-C-C will announce their latest quarterly results after the US stock market closes on Tuesday, while Meta will announce its latest quarterly results after the US stock market closes on Wednesday. The results will show whether the technology has become a significant driver of growth, enough to justify its recent high valuation. Microsoft currently has a price-to-earnings ratio of 31 times, higher than its long-term historical level and higher than the Nasdaq 100 index.

Stefan Slowinski, an analyst at Exane, the securities business division of BNP Paribas, said before Microsoft's earnings announcement, "It may still be too early to see the impact of artificial intelligence on revenue, but we may see costs rise with the development and distribution of this technology, which could be a concern from a profitability perspective. Microsoft's fundamentals are obviously quite strong, and it will benefit from artificial intelligence, but at this valuation level, you must scrutinize the risks more."

Alphabet-C-C may also face a similar situation, as investors hope to see if its chatbot Bard will disrupt the company's main money-making tool - Alphabet-C search engine. Intense competition and innovative AI products have left this tech giant with no choice but to respond to recent developments that may threaten its market dominance, especially with ChatGPT and Microsoft's Bing chatbot, which involve a threat to its nearly $150 billion search business annually. This does not mean that these two companies are already grateful for artificial intelligence. Microsoft still generates billions of dollars in revenue from its software products and cloud business, while Alphabet-C's advertising engine remains an unparalleled growth driver. AI is still not the main driving force for these companies. Nevertheless, with the market's attention on artificial intelligence, the performance, prospects, and costs of this department will be the most rigorously scrutinized by each company.

The earnings reports to be released by Alphabet-C and Snap (SNAP.US) on Tuesday evening local time will also indicate whether the digital advertising market is recovering from its slump. Another important AI technology company, Meta Platforms, will also reveal relevant information in its earnings report to be released on Wednesday.

In addition to tightening budgets, the company led by Mark Zuckerberg has been dealing with complex issues in its advertising business: Meta is trying to sell more short video ads for its Reels application, which is seen as a competitor to international TikTok. Users are spending more time browsing these pages, but advertisers have not kept up quickly enough.

The lackluster performance of Netflix (NFLX.US) and Tesla (TSLA.US), the other two Nasdaq 100 component companies, announced last week, shows that even market darlings can experience sudden changes in fortune. Tesla's stock price fell nearly 10% after the earnings release, as the company warned that its already shrinking profitability could further decline. Netflix announced third-quarter revenue guidance below analysts' expectations, resulting in the largest drop in its stock price in seven months.

Tech giants hold the fate of the US stock market

This is also of great importance to the overall market. According to data, in the first half of this year, the performance of the seven largest companies in the S&P 500 index, mainly technology and internet companies, exceeded that of the other constituents of the index. This is the largest performance since the dot-com bubble, and the rise of the US stock market is mainly driven by these seven tech giants. Without the rise of these companies, the 16% increase in the S&P 500 index could be reduced by more than half.

Erika Klauer, technology stock portfolio manager at Jennison Associates, said, "Although the stock market has risen significantly so far, we are still in the early stages of AI applications, which means we still believe that companies like Microsoft have a lot of room for growth. Microsoft is clearly an important beneficiary."

A total of about 170 companies in the S&P 500 index will announce their earnings this week, accounting for 40% of the total market value of the index. For investors, next week may be equally important, as Apple and Amazon (AMZN.US) plan to announce their earnings after the US stock market closes on August 3.

This also reflects people's expectations that after large technology companies actively cut costs, corporate profitability will continue to improve with the assistance of AI technology. In fact, according to Bloomberg Intelligence's forecast, the expected profit growth of the top five companies in the S&P 500 index for the second quarter is an astonishing 16%. In contrast, according to Bloomberg Intelligence's forecast data, the overall profit expectation for S&P 500 index constituent companies in the second quarter is expected to decline by 9% YoY, potentially hitting a "performance bottom" in recent quarters.

Driven by the additional profit expectations brought by artificial intelligence (AI), tech giants such as Microsoft and NVIDIA have seen a significant surge in their stock prices, with NVIDIA's year-to-date increase reaching as high as 200%. Therefore, these tech giants have little room for error in terms of performance, and the market's tolerance for flaws in their performance will be very low. The substantial rise in the stock market this year has also raised concerns among some investors about whether stock prices have already surged too much, indicating that market expectations may have gone too far.