Following an earnings beat from Alphabet Inc., one portfolio manager says other major tech companies need to deliver strong results amid high multiples and large AI expenditures.
Alphabet reported its latest earnings Tuesday, showing its expensive venture into AI is beginning to yield results with better-than-expected sales for its cloud-computing businesses, Bloomberg News reported. Net income during the quarter surpassed expectations, reaching US$2.12 per share. Excluding partner payouts, revenue rose by 16 per cent annually to $74.6 billion, beating expectations.
Martin Pelletier, a portfolio Manager at Wellington-Altus Private Counsel, said in an interview with BNN Bloomberg Wednesday that the tech giant delivered a “solid quarter.”
“Overall, the tech sector is looking a little bit stretched here with high expectations in the ninety ninth percentile for earnings and valuations being in the ninety third percentile. But Google certainly delivered,” he said.
“And the big question is, are the rest of the five megas who are reporting this week going to post similar results?”
Microsoft Corp. and Meta Platforms Inc. are scheduled to report earnings Wednesday, with Bloomberg News reporting that investors will look to see if their large AI expenditures are paying off.
Ahead of the results from other major tech companies, Pelletier said “AI seems to be everywhere these days.”
“AI is certainly integrated into a lot of different areas in the U.S. economy. And I think that’s why we’re seeing what we’re seeing south of the border (with) the U.S. leading every other country in the world, and economically AI is certainly having an impact there,” he said.
Amid concerns among some industry watchers of a potential AI bubble, Pelletierm said he wouldn’t use that term, but questions whether AI enthusiasm has “gotten ahead of itself.”
“The big question is: Is it sustainable in regards to the growth? And the level of growth that we’re seeing is beginning to dissipate,” he said.
As growth is moderating in the sector, Pelletierm noted that multiples are still elevated.
“So, companies better deliver like Google and if they don’t, we we’ll see some moves to the downside,” he said.
