Is the Artificial Intelligence (AI) Stock Bubble Bursting? These CEO Quotes Say No: The Boom Will Continue

The recent earnings season saw a violent sell-off in many technology names that have surged this year as investors question the AI ​​boom.

There is no doubt that big companies continue to spend heavily on AI infrastructure. While big tech companies continue to spend more money on AI infrastructure, the alphabet (NASDAQ: GOG) (NASDAQ: GOOGLE) And Microsoft (NASDAQ: MSFT) Although the company’s earnings were very good, many investors were expecting more. With the economy slowing down overall and the unemployment rate recently rising to 4.3%, the selloff has been intense recently.

However, reading the comments from leading tech companies, this investor believes that concerns about the AI ​​revolution are short-sighted. Based on statements from major tech CEOs and one from a leading memory company in late June, there is a strong case to be made that the spending boom will continue. That makes the recent pullback in AI stocks a long-term opportunity.

Google, Microsoft report strong AI growth results

At first glance, it’s quite understandable why investors sold these stocks when they made profits. While both Microsoft and Google beat expectations in terms of revenue and profits, they also spent more on Capital expenditures To build AI data centers.

While Alphabet beat expectations with 14% revenue growth and 31% earnings per share growth in the quarter, which was impressive, capital expenditures nearly doubled compared to last year. While Microsoft beat expectations, posting 15% revenue growth and 10% earnings per share growth — though operating income growth matched the 15% revenue growth — its capital expenditures were up 55% compared to the year-ago quarter.

Investors are clearly concerned that the current growth in operating income is not matching the growth in spending. This means that big tech stocks will either fall because they are spending money on projects that do not generate enough income. return on invested capital Or finally stop spending so much, which could hurt people like Nvidia (NASDAQ: NVDA) and other semiconductor stocks.

However, management at each company remained bullish on AI. Alphabet CEO Sundar Pichai noted that the company’s AI solutions are used by about 2 million developers. Meanwhile, Google Cloud revenue beat expectations, accelerating its growth rate as profitability soared to $1.2 billion, a new quarterly record. Pichai also added:

The story continues

Microsoft has also been vocal about its AI products. CEO Satya Nadella noted that its powerful AI CoPilot product launches are seeing momentum across the customer base. Microsoft 365 CoPilot seats have doubled quarter-over-quarter, and Github CoPilot is now larger than Github overall was when Microsoft first bought it in 2018, according to Nadella. While Azure’s growth has missed the Street’s expectations technically, Azure is still growing 30% in constant currency, the strongest of the three major cloud providers.

Cash-rich companies continue the race toward general artificial intelligence

So while these tech giants may have seen some slowdown in parts of their economically sensitive businesses, AI products remain strong. At the same time, all the major cloud companies have significant cash on their balance sheets and the ability to invest.

Could they slow spending if the economic climate worsened enough? Perhaps, but here’s a quote from a memory expert: Micron Technology (NASDAQ: MU) CEO Sanjay Mehrotra hinted in late June that spending could continue, regardless of the economy:

AGI is seen as the “holy grail” of AI. It means that a machine will be able to think, reason, and learn just like a human, while also having access to all the world’s knowledge. This would lead to superintelligence that could theoretically benefit humanity in revolutionary ways.

While many believed that AGI wouldn’t arrive until 2050, recent developments have brought the goal closer. Elon Musk predicted AGI within two years, and OpenAI CEO Sam Altman predicted AGI in about five years.

Tech giants have the power to continue this race.

Mehrotra’s comment seems to suggest that big tech companies around the world are in the AI ​​race for the long haul, or at least until we see AGI.

While the big tech companies may be slowing down compared to expectations, they are still incredibly profitable companies with huge balance sheets. So as long as AGI seems like a realistic goal in the medium term and these companies have the money, the AI ​​race looks like it’s still on.

Should You Invest $1,000 In Micron Technology Now?

Before you buy shares in Micron Technology, keep the following in mind:

the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks There are 10 stocks for investors to buy right now… and Micron Technology wasn’t one of them. The 10 stocks that made the list could deliver massive returns in the years ahead.

Think about when Nvidia I made this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $657,306.!*

Stock Advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Stock Advisor The service has More than four times S&P 500 Index Return Since 2002*.

View the 10 stocks »

*Stock Advisor returns as of July 29, 2024

Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or its clients have positions in Alphabet, Micron Technology, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends the following options: Buy $395 Jan 2026 Microsoft and Sell $405 Jan 2026 Microsoft. The Motley Fool has Disclosure Policy.

Is the AI ​​Stock Bubble Bursting? These CEOs Say No: The Boom Is Here To Stay Originally posted by The Motley Fool