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Big Tech’s post-earnings performance diverged this week, clearly winners and appear lagging as Wall Street looks for clear signs of returns on AI investments to determine market leaders.
Meta stock (TARGET) jumped more than 10% in one day as investors joyful productivity increases and the integration of AI into the company’s social media applications, advertising and shopping tools, and internal workflows.
Meanwhile, Tesla (TSLA) bounced back on Friday after selling off as investors weighed a massive spending forecast after Elon Musk he emphasized the company’s transition from an electric vehicle manufacturer to autonomous driving and robotics.
And the shares of tech giant Microsoft (MSFT) it was hammered following its results amid concerns over slowing cloud growth and massive AI-related spending. Shares in cloud software leader Salesforce (CRM) and ServiceNow (NOW) also worried that AI could disrupt the software-as-a-service model.
“It comes down to monetization. That’s what the Street wants to see here,” Wedbush Securities CEO and global head of technology research Dan Ives told Yahoo Finance on Friday.
“I think what you’re seeing is really a bifurcation in technology. It’s kind of the haves and the have-nots, and that’s really what’s happening through the technology gains,” he added.
The market has distrusted one AI bubble in recent quarters and wants to see the company’s billions of dollars in technology investments paying off.
“Investors are voting with their feet and entering sectors where growth is most evident and where they feel there is durability,” said Wolfe Research CEO and head of software research Alex Zukin.
Still, Wall Street sees the recent sale in software stocks as exaggerated, arguing that the benefits of AI will take longer to materialize.
“There’s a lot more complexity associated with enterprise, data, governance, security, compliance, risk, and we think some of those trends and themes may play out over a longer period of time,” he said, adding, “We’re still in phase zero of adoption.”
The analyst sees buying opportunities in data platform companies like MongoDB (MDB), data warehouse providers such as Snowflake (SNOW), observability providers such as Datadog (dog), and communications platform companies such as Twilio (TWLO), all of which have declined in sympathy with broader weakness among software stocks.
A clear theme is at play: a huge demand for memory and storage for AI.
