The “stumbling block” of the tech giants?

The fourth quarter business results of many technology corporations have just been announced in the past few days. The numbers are worse than revenue in the same period in previous years, showing that the technology industry, especially those that rely heavily on online advertising, has not yet overcome the challenge.

“Black shadow” covers the online advertising industry

Last Thursday, Alphabet Inc, the owner of Google, reported a slight drop in quarterly ad revenue, falling short of Wall Street expectations and surprising investors with its largest digital advertising platform. the world has traditionally had a good recovery compared to its smaller competitors. Shares of Alphabet were down more than 4% before trading on Thursday, Feb. Evelyn Mitchell, an analyst with Insider Intelligence, said: “For a company the size of Google and the influence of Google to have such disappointing results, (that means the advertising industry ) will not be able to recover in a quarter”.

Snap Inc (SNAP.N), the parent company behind the photo-messaging app Snapchat, said last week that it expects current-quarter revenue to drop as much as 10% due to competition over advertising dollars and the economy. Challenging.

Google and Facebook are the two dominant platforms in the online advertising market (Sourcen; BarnRaisers)

“Advertisers are managing their spending very carefully so they can react quickly to any changes in the business environment,” said Snap CEO Evan Spiegel.

The health of the advertising industry is a reflection of the economy, and many advertisers have slashed their marketing budgets over the past year in response to record-high inflation rates and the possibility of a recession. Meta chief financial officer Susan Li said the overall economy continues to be “quite volatile” and it is too early to say what this year will look like. Nicola Mendelsohn, Meta’s corporate vice president of global business, said in a recent interview that the overall advertiser mood is upbeat but still cautious this year.

“Vulnerability” in cloud services

One of the technology services that exploded during the pandemic was cloud technology. But it seems that these “clouds” are showing big holes when it can’t bring in revenue as expected. Earnings from Amazon.com Inc and Microsoft Corp – two corporations that together dominate the cloud market – show growth at its slowest pace since they began making figures public in 2015 and are on track to rise. grow more slowly.

Cloud services have been an important source of revenue for Microsoft for nearly 3 years of the pandemic

Going back in time to the times of the COVID-19 pandemic, Microsoft posted around 50% growth in its Azure cloud business for each quarter of 2020, as the pandemic forced people to… work and study from home. Meanwhile, market leader Amazon Web Services (AWS) reported a roughly 30% increase in sales during the same period. Cloud services have long been a reliable source of income for Microsoft and Amazon—until now.

According to Refinitiv data, growth at AWS – Amazon’s cloud service – slowed to a record low of 20% in the final three months of 2022 to $21.4 billion, lower than estimates by other companies. analyst is $22.03 billion. Azure, Microsoft’s cloud service, rose 18 percent to beat expectations for October-December. But its current quarter forecast of $21.7 billion to $22 billion fell short of estimates. $22.14 billion.

Alphabet Inc (GOOGL.O), which has the smallest cloud business of the three, said Google Cloud grew 32%, the slowest increase since the company began reporting. reported in 2019.

Google Cloud service also started to slow down

“Once considered the most defensive revenue stream in the tech sector, we’re seeing investors question the cloud business,” said analysts at Bernstein.

Hundred “thanks” to AI?

Advertising struggled, cloud services began to stop laying golden eggs, tech companies were forced to look to the next gem – and many experts say AI – artificial intelligence – is the answer. reply.

The explosive potential of AI after the huge success of OpenAI’s ChatGPT could spur demand for cloud services again, analysts say. AI applications require massive computing power, a boon for companies whose services help run the technology. As an investor and partner in OpenAI, Microsoft looks poised, analysts say, but any advantage could take time to turn into a profit.

AI chatbots are expected to be the new gold mine of the technology world

Tech giants are sure to keep an eye on AI and chatbots, especially after rival Microsoft announced a $10 billion investment, effectively putting them in charge of artificial intelligence startups. in the next few years. While many companies are still reeling from falling sales and thousands of layoffs, many tech leaders are signaling that AI is set to play a much larger role in the future.

Apple CEO Tim Cook said AI is a “major focus” for the company, adding that its apps have the potential to “affect every product and every service Apple has.” Meta, Facebook’s parent company, has also spent more money on AI in recent months to maintain its metaverse ambitions.

Even so, these giant corporations will have to be wary of competitors who are small and medium-sized startups. According to the Yahoo! then the smaller players in the technology market are quite capable of launching tools that use artificial intelligence successfully before the banyan trees of Silicon Valley. In that case, the tech giants may be “strong for rice, bold for money”–but it’s possible their bulkiness will put them behind their smaller rivals.