‘AI All-Star’ Microsoft’s rosy earnings spark rally in tech stocks

By Nivedita Balu and Aditya Soni

(Reuters) – Microsoft Corp shares surged about 7% on Wednesday and lifted tech stocks after the company’s robust earnings eased fears of a slowdown in cloud computing and boosted confidence that artificial intelligence will become a major growth driver.

The Redmond, Washington-based tech giant is set to add about $160 billion to its market value and replace Saudi Aramco as the world’s second-most valuable company, if current gains hold. Its $2.2 trillion valuation trails Apple Inc’s by about $300 billion.

At least 18 analysts raised their price targets on the stock, with Piper Sandler’s Brent Braceli saying “AI-All Star” Microsoft’s results floored investors with better-than-expected growth across several units ranging from cloud computing to Office productivity software.

Microsoft’s results bode well for an industry that has laid off tens of thousands of workers recently as demand fades in the face of a sagging economy.

Shares of Big Tech peers Inc, Meta Platforms Inc and Alphabet Inc rose between 1% and 3%.

GRAPHIC: Microsoft AI

Alphabet, the parent company of Google, had also reported better-than-expected quarterly results, but its search engine grew just 2% compared with the 10% increase for Microsoft’s Bing – which is benefiting from the integration of the tech behind ChatGPT.

“Investors didn’t really like the Alphabet call as much as the Microsoft call… Microsoft was very aggressive talking about AI and Google was very conservative,” said Dennis Dick, a market structure analyst at Triple D Trading.

The Windows maker’s earnings call on Wednesday underscored the growing importance of AI, with CEO Satya Nadella mentioning it 50 times in a 60-minute event.

GRAPHIC: Alphabet and Microsoft talk up AI

Nadella said the company had more than 2,500 Azure-OpenAI service customers ranging from Coursera and Mercedes-Benz to Snap Inc and that AI was integrated into a wide array of products.

“Given the significant head start OpenAI has over other generative AI engines and Microsoft has over its hyperscaler (large-scale data center) competitors, we believe that Azure may gain share as generative AI continues to proliferate into many more corners of software and the economy,” D A Davidson analyst Gil Luria said. 

(Reporting by Nivedita Balu and Aditya Soni in Bengaluru, Additional reporting by Ankika Biswas; Editing by Subhranshu Sahu)