Meta, Amazon achieve best returns on AI investments: DA Davidson
Meta Platforms (NASDAQ:META) appears to be achieving the best returns on its investments in artificial intelligence out of the “Magnificent 6” in the latest round of earnings, according to the analysts at D.A. Davidson.
“Unlike the hyperscalers, who are renting out picks and shovels to customers who have yet to find much AI gold, Meta is finding its own gold in the form of 19% advertising growth on a 23% comp,” said D.A. Davidson’s Gil Luria and Alex Patt, in an investor note on Monday. “It is clear that AI can and will make for more, better ads, that create more value for customers and will therefore be sold at higher prices.”
The investment bank also credited Meta’s open-source approach to AI, which is driving higher levels of adoption by developers.
Among the hyperscalers, Amazon (NASDAQ:AMZN) appears to be the new leader.
“Amazon is well positioned to extend this lead as it has freed up Retail Capex for AWS investment and can leverage its own chips to create a cost advantage over Azure (NASDAQ:MSFT),” Luria said. “This quarter was also an inflection point for investors concerned about Retail margins, as a variety of misplaced concerns coming into the quarter have now dissipated.”
Google (NASDAQ:GOOG)(NASDAQ:GOOGL) also demonstrated impressive growth in its hyperscaler business, while also maintaining resilience in its ad business.
Among the top hyperscalers, only Microsoft’s Azure demonstrated deceleration despite higher capital expenditures.
“Microsoft has invested more than $50B of incremental capital in its GenAI business — more than $35B of incremental Capex over the last six quarters, close to $14B in investment and commitments to OpenAI, and likely several more billion in incremental operating expenses that have been reallocated from other businesses,” Luria added. “Importantly, Microsoft is still increasing the rates of excess Capex, more than doubling the ROI denominator every year.”
Although Apple (NASDAQ:AAPL) has yet to show a real benefit yet from AI investments, D.A. Davidson believes this will materialize in the next few quarters through Apple Intelligence.
Last, but certainly not least, is Nvidia (NASDAQ:NVDA). As other companies in the group provide commentary around increased AI capital expenditures, Nvidia will continue to prosper.
“As long as Microsoft escalates the great data center build out, we believe it will continue to transfer shareholder value from MSFT to NVDA,” Luria said. “Having said that, we believe shareholders are one step closer to losing patience with this transfer of their wealth.”