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By Yuvraj Malik and Zaheer Kachwala
(Reuters) - U.S. technology giants are likely to post their strongest quarterly revenue growth in at least a year as their legacy businesses stabilized, but investors looking for signs of a boost from artificial intelligence (AI) may be disappointed.
Microsoft, Google-parent Alphabet, Facebook-parent Meta Platforms and Amazon are expected to have built on the recovery in their enterprise software and digital ads businesses as professional and consumer spending stayed resilient despite an uncertain global economy.
The quartet's shares have rallied -- between Microsoft's 36% and Meta's 157% -- this year, boosting their combined market value to over $6 trillion and lifting the benchmark S&P 500 index.
"After a year where enterprise spend was held down by concerns about the economy, we're heading into a year where those concerns are slowly subsiding, making for a more stable spending environment in enterprise software and advertising," said Gil Luria, senior software analyst at D.A. Davidson.
While enterprise demand stabilized for legacy products, that has not extended to cloud computing, the mainstay for Microsoft and Amazon. The duo likely just barely budged off their previous quarter's record-low cloud growth rates.
Microsoft, though, is likely to flag some wins from its investment in OpenAI and integrating the technology across its products, analysts said. The company had promised aggressive spending to meet demand for its AI products.
RBC Capital Market estimates Microsoft will clock over $3 billion in revenue from generative AI offerings this fiscal.
For others, such AI investments, like buying expensive Nvidia chips, may hurt their bottom lines in the short term.
"It's probably not going to be material to revenue until 2025 because enterprises are still figuring out their generative AI strategy," RBC analyst Rishi Jaluria said.
On Tuesday, Microsoft is likely to report a nearly 9% rise in first-quarter revenue, according to LSEG data, driven by strength in its enterprise productivity software business.
Its costs, however, are estimated to have jumped 8.4%, the most in a year.
On the same day, Alphabet is expected to post a 10% rise in quarterly sales. Revenue from Google Services, which includes YouTube, Search and the sale of apps, is expected to have grown by 8.5%.
Alphabet and Meta are set to benefit from an uptick in digital ad sales ahead of the holiday-shopping season.
Last month, media research and investment firm Magna raised its forecast for U.S. ad spending growth to 5.2%, from 4.2%, for calendar 2023. It expects digital ad sales to rise 9.6% in the period.
