A cloudy forecast for Big Tech and A.I.
The Nasdaq composite index looks set to open in the red on Wednesday, after investors got a split-screen view of how two tech giants, Microsoft and Alphabet, were doing in efforts to profit from artificial intelligence.
The verdict so far, based on quarterly earnings reports released on Tuesday: Only one of them is showing early progress. That raises questions about the tech industry’s multibillion-dollar bet on the power of A.I.
Microsoft shares are up 3.9 percent after exceeding expectations. The company reported $56.3 billion in sales, largely on the strength of its Azure cloud business. Some of that growth came from generative A.I., where Microsoft has invested big: It has poured $13 billion into OpenAI, the firm behind ChatGPT, and built that technology into its Bing search engine.
Satya Nadella, Microsoft’s C.E.O., told analysts that more than 18,000 organizations were using Azure OpenAI, including new customers. (The Information reported on Tuesday that some early OpenAI customers were switching to cheaper alternatives … including Microsoft.)
It was a different story for Alphabet, whose shares were down 6.2 percent premarket. The company on Tuesday reported “meaningful growth” in its Google search and YouTube business lines, but its cloud results came in well below forecasts. Analysts appear to be concerned that it’s falling behind Microsoft and Amazon in the market for cloud computing, which customers are buying to help power their A.I. initiatives.
On Tuesday’s earnings call, Sundar Pichai, Alphabet’s C.E.O., doubled down on the technology. “We’ll do everything that is needed to make sure we have the leading A.I. models and infrastructure in the world, bar none,” he said.
Alphabet faces legal headwinds, too. The Justice Department’s antitrust case against the company resumes on Wednesday, with the internet giant scheduled to begin its defense shortly. Here’s a recap of the landmark proceedings, and what to expect next.
More tech giants that have bet big on A.I. are set to report shortly. Up later on Wednesday is Meta, whose shares have more than doubled this year, helped by a steady rebound in its ad sales at Facebook and Instagram and by a vast cost-cutting initiative. Investors will be looking for evidence that Meta’s investments in A.I. are helping to grow its core ad business.
That said, Meta’s stock fell on Tuesday after more than three dozen states and the District of Columbia sued the company for violating consumer protection laws by designing platforms like Instagram to hook young users for “compulsive and extended use.” Meta said it was working to provide a safer environment for teenagers on its apps.
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In other tech news: Spotify swung back to profitability last quarter after it introduced pricier subscription plans. And Snap returned to growth following two consecutive quarters of declining sales, in another sign of revival in the market for digital ads.
A reminder: The DealBook Summit will be on Nov. 29. Among the guests are Elon Musk of Tesla and X; Jamie Dimon of JPMorgan Chase; and Representative Kevin McCarthy, the former House speaker. You can apply to attend here.
HERE’S WHAT’S HAPPENING
House Republicans churn through two speaker nominees in one day. Lawmakers first chose Tom Emmer of Minnesota as their candidate, only for him to withdraw after facing backlash from hard-right legislators and from Donald Trump. They then picked Mike Johnson, a little-known social conservative from Louisiana, but it’s unclear whether he can finally break the G.O.P. logjam that has paralyzed the House for three weeks.
A fourth defendant flips in the Georgia 2020 election fraud case. Jenna Ellis, a legal adviser to Donald Trump who publicly embraced claims that the presidential race had been stolen, pleaded guilty and agreed to cooperate with prosecutors. She joins fellow lawyers Kenneth Chesebro and Sidney Powell, as well as the bail bondsman Scott Hall, in taking a deal.
Another fashion giant sinks as luxury spending slows. Shares in Kering, which owns Gucci and Saint Laurent, fell as much as 9 percent this morning in Paris after the company reported a wider-than-expected drop in revenue last quarter. Kering joins LVMH in suffering declining sales as well-heeled consumers pull back their spending.
G.M.’s bad day
There has been little good news lately for General Motors, whose stock price has fallen more than 13 percent over the past month as it faces a targeted strike by the U.A.W. and slowing growth in the demand for electric vehicles.
Several news developments on Tuesday underscored some of the company’s major struggles.
G.M. said quarterly profits fell 7 percent year-on-year. The U.A.W.’s strike was a major factor; the carmaker said it expected the union action to cost around $200 million a week. (Despite the walkout, G.M. said that revenue rose about 5 percent in the quarter.)
Then another 5,000 G.M. workers walked off the job at the company’s biggest plant. The stoppage at the factory in Arlington, Texas, which makes large and profitable S.U.V.s such as the Chevrolet Tahoe and Cadillac Escalade, further increases the cost of the strike. The U.A.W.’s move came despite the two sides seeming to edge closer to a deal; some analysts said the action might have been meant to squeeze every last dollar from the company.
G.M. abandoned a goal to build 400,000 electric vehicles by mid-2024, citing slower-than-expected growth in sales. The company, which has bet its future on its E.V. transition, also recently delayed an effort to expand electric pickup production.
G.M.’s chief financial officer, Paul Jacobson, said that the company was still embracing electric vehicles: “Our commitment to an all-E.V. future is as strong as ever,” he said on Tuesday.
And finally … the carmaker’s Cruise autonomous vehicle division was kicked out of California. State regulators ordered Cruise to stop its driverless taxi service after a series of traffic mishaps. It’s bad news not only for G.M., which poured $700 million into the division in the most recent quarter, but also for the autonomous vehicle business more broadly.
“Across the entire Raytheon portfolio, you’re going to see a benefit of this restocking.”
— Greg Hayes, C.E.O. of RTX, Raytheon’s parent company. He told analysts on Tuesday that the defense giant expected to benefit from a bigger Defense Department budget with higher shipments of weapons to Israel and Ukraine. (Hayes began the call by “acknowledging the tragic situation playing out in Israel today.”)
Protecting land amid U.S.-China tensions
Land purchases in the U.S. by companies with potential ties to the Chinese Communist Party are increasingly becoming a sore point between Washington and Beijing. Microsoft recently raised concerns about a Chinese-owned Bitcoin-mining center located near an Air Force base in Wyoming. And lawmakers have expressed worry about whether entities with ties to Beijing are buying up huge swaths of American farmland.
Senator Tim Scott, Republican of South Carolina and a 2024 presidential contender, introduced a bill on Tuesday intended to fix what he called a “significant flaw” in the review process.
His legislation would require federal agencies to maintain a list of sensitive locations that would be provided to the Committee on Foreign Investment in the U.S.
The committee has been hamstrung by bureaucratic issues in the past: It said last year that it had no jurisdiction to review a land purchase by Fufeng Group, a Chinese food company, near an Air Force base in Grand Forks, N.D., because the Defense Department hadn’t flagged the area.
A spokeswoman for Scott told DealBook that his legislation “ensures that foreign adversaries can’t set up in sensitive locations.”
The Treasury Department, which oversees the committee, is also trying to address the issue. In May, the department proposed a rule to add certain military installations, including the North Dakota base, to the committee’s purview. The plan would create a process for agencies to inform the committee about sensitive locations, and for the panel in turn to report to Congress.
States are taking matters into their own hands. Officials in Grand Forks terminated the Fufeng deal in April, citing national security concerns because of its proximity to the base. State lawmakers across the U.S. have introduced bills to limit foreign ownership of land near military bases.
This month, Arkansas ordered a seed company owned by the state-controlled China National Chemical Company to sell 160 acres of land and pay a penalty under a new law targeting “prohibited foreign party-controlled” land. Asked why the purchase posed a risk to U.S. intellectual property, Gov. Sarah Huckabee Sanders said, “Seeds are technology.”
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