[Into the World of AI] Hyperscalers' Strong Earnings Revitalize AI Stocks: "Investments Prove Results"

Microsoft, Amazon, Alphabet, and Meta
Combined Operating Income Up 21.3% in Q2

With strong earnings reports from cloud hyperscalers (major data center operators) Microsoft, Amazon, and Alphabet, interest in artificial intelligence (AI) stocks is surging once again. Although there are concerns about increased financial burdens due to the hyperscalers' continued AI investment, the robust performance of these companies is fueling further expectations for growth.

According to the IT industry as of August 1, the combined second-quarter revenues of four hyperscalers—Microsoft, Amazon, Alphabet, and Meta—for this year increased by 21.4% compared to the same period last year, while their combined operating profits rose by 21.3%.

Google Cloud Platform, Microsoft Azure, and Amazon AWS posted solid sales growth, increasing by 82%, 43%, and 37%, respectively, compared to the previous year. The operating margins in the cloud segments of Alphabet, Amazon, and Microsoft were also notable, reaching 36%, 39%, and 41%, respectively.

The cloud businesses of Alphabet, Microsoft, and Amazon all exceeded expectations, driven by surging business-to-business (B2B) demand among AI companies. Notably, Amazon's cloud division AWS reported a 37% increase in revenue to USD 42.2 billion, surpassing forecasts by 31%, and marking its highest growth rate since 2021.

The outstanding order backlogs further demonstrate strong corporate demand. Alphabet's order backlog grew by USD 50 billion compared to the previous quarter, reaching USD 514 billion. Microsoft and Amazon posted order backlogs of USD 678 billion and USD 496 billion, respectively.

Experts predict that as hyperscalers continue to ramp up AI investment, cash flows are likely to slow, and financial burdens will grow heavier going forward. Although hyperscalers' financial conditions remain healthy, there is rising concern about increasing reliance on external funding and higher debt levels due to unprecedented large-scale investments.

The Four Hyperscalers Continue Aggressive Investment

With continued investments in servers and semiconductors to secure leadership in the AI ecosystem during the second quarter, total quarterly capital expenditures (CapEx) for the four companies surged by 87% year-over-year to USD 165.1 billion. In earnings conference calls and other communications, all four companies either upgraded their CapEx guidance for this year or signaled continued aggressive investment.

However, based on these companies' solid capital expenditure outlooks, it appears that expectations for earnings growth across the entire AI value chain are likely to remain strong for the time being. The International Finance Center noted, "Unlike during past internet and cloud cycles, the current climate of high interest rates is raising greater caution that the resulting interest expenses could damage fundamentals over the medium and long term," adding, "The share prices of hyperscalers will increasingly diverge depending on their core cash-generating ability and capital efficiency."

As big tech companies continue to release earnings reports, volatility in the stock market is intensifying.

Microsoft and Amazon, which have demonstrated results from their AI investments through strong cloud revenue growth, saw their share prices surge. AI cloud infrastructure-related stocks such as Nebius and CoreWeave also climbed sharply. This is being interpreted as a sign that the substantial AI infrastructure investments made to date are finally yielding tangible results, fostering a positive sentiment in the market. In contrast, Meta announced a large-scale capital expenditure plan without specifying a clear timeline for profit recovery, leading to increased concerns and a lackluster share price trend.

Wells Fargo commented, "Twelve to eighteen months ago, the key variable for stock prices was how much companies could spend on AI infrastructure, but now the market has shifted to focus entirely on checking the return on investment (ROI) from those expenditures."

The Financial Times (FT) reported, "The AI investment by America's four largest big tech companies has surpassed USD 1 trillion (about KRW 1,437 trillion) in just three and a half years," stating, "This level of expenditure illustrates how big tech companies that previously enjoyed high profits from internet platforms without major physical infrastructure are now rapidly morphing into entities that must invest vast sums in data centers and AI semiconductors."

At a recent launch event for the AI Data Center (AIDC) Alliance, Lee Jaeseong, president of LG Electronics, remarked, "When I meet with top executives from global big tech companies, they unanimously say that AI is all about speed," emphasizing, "If Korea loses in the race for speed in AI investment, we're out. It is crucial that we do not fall behind in this speed competition."

This content was produced with the assistance of AI translation services.