The ratcheting up of capital spending plans over the past few quarters has been mesmerising. But I think the bigger questions for this quarter are: Are these companies actually building all that promised AI capacity fast enough?
Also: Are they finding ways to translate all that new computing power into higher revenues and sustainable margins? And at a time when AI demand is still well ahead of supply, where are they channelling what capacity they do have?
The best indicator of generative AI demand is coming from the main cloud platforms — Amazon Web Services, Google Cloud Platform and Microsoft Azure. So, no surprise, these have been getting all the attention going into earnings. A lot of the cloud rebound over the past year or so has come from building the data foundations companies will need for AI, but actual AI workloads are also starting to become a meaningful contributor.
The stocks of all these companies have had a remarkable rebound over the past month and expectations going into earnings are sky-high, so if the cloud numbers come up short it could get ugly. Microsoft found that out last quarter, when Azure did not live up to the hopes.
The whisper numbers — what the bulls are really hoping for — are probably some way north of the reported analyst expectations. There isn’t much room for error.
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