Despite being regarded as leaders in the field, Alphabet Inc., the parent company of Google, and Microsoft Corp. have underperformed in the artificial intelligence (AI) industry this year.
Microsoft and Alphabet have only increased by about 5 percent this year, well behind the nearly 60% increase in Nvidia, according to a Bloomberg report published on
"If you're only buying Microsoft and Alphabet for AI, you might be disappointed by how slowly it rolls out and translates to revenue growth," said Gregg Abella, chief executive officer of Investment Partners Asset Management.
"The rate environment is less favorable, and while earnings are robust, they're not as exciting as they used to be in terms of growth."
While the tech giants' shares tublme, businesses like Nvidia Corp. and C3.ai Inc. have surged on the back of the excitement over the potential boost to their business.
Both businesses are making significant investments in AI, which is expensive to create and may not yield a quick return on investment.
AI and inflation
The use of AI in search is a focus for both Microsoft and Alphabet, despite the fact that it could be an expensive long-term growth driver.
Microsoft recently introduced a new version of its Edge browser and Bing search engine that use the technology in addition to investing $10 billion in OpenAI's ChatGPT.
Google's parent company, Alphabet, which had earlier decided to incorporate AI into search, noted a decline in demand for search advertising, while Microsoft warned of a downturn in cloud and business software sales in their most recent quarterly reports.
Their stock prices have also been impacted by the more challenging environment for tech shares in general as a result of the Federal Reserve's aggressive interest rate increases to battle inflation.
However, given their poor performance, Microsoft and Alphabet continue to be the analysts' top picks, with buy recommendations on both stocks coming from almost 90 percent of those monitored by Bloomberg.
Alphabet trades at a discount to the Nasdaq 100 and its five-year average of less than 16 times anticipated profits. Microsoft's multiple is likewise lower than the five-year average.
The market for artificial intelligence is predicted to expand quickly; according to analysts at UBS Group AG, it will increase from a $36 billion industry in 2020 to $90 billion by 2025, noted the Bloomberg report.
