The three cloud computing giants, Amazon, Google, and Microsoft, hold a 65% share of the global cloud services market and are considered as "AI shovel sellers," significantly driving the demand for graphics cards, which has always been a focal point in the market.
Today, Google and Microsoft successively held their first-quarter earnings calls. Overall, driven by AI, Google's Q1 2024 revenue and profits exceeded expectations, with a forecast of at least a 49% year-over-year increase in Capex for 2024; Microsoft's revenue and profits also surpassed expectations, with guidance to further expand AI investment in 2024, expecting a significant quarter-over-quarter growth in the next quarter.
Overall, the demand for AI infrastructure is very strong.
2. Strong Demand Leads to Shortage in Computing Power Cards
During the earnings call, Microsoft highlighted the current market demand for AI surpassing the company's existing reserves. Capital expenditures across various manufacturers during this financial reporting season indicate the thriving state of the AI industry.
Looking at the supply chain perspective:
In other words, the current market's H100 cards are sufficient to train nearly 150 GPT-4 models. However, considering the future iterations of GPT-5, GPT-6, as well as the demand for image and upcoming video models, the training end's demand remains highly scarce. A paper released by Factorial Funds in March this year mentioned that approximately 720,000 H100 cards would be needed to operate Sora once officially launched.
Recent market concerns about reduced delivery cycles are speculated to be more due to the release of CoWos and HBM production capacity.
Nevertheless, it is essential to remain cautious of the industry's cyclicality. Referring to history, the semiconductor industry cycles every 4-5 years, with each cycle catalyzed by new technological iterations. The timing of the peak of this AI cycle also requires ongoing attention.
3. Empowering Business Growth with AI
After implementing AI in their products, Meta has seen significant performance improvements. Google and Microsoft have also achieved impressive revenue and profits driven by AI.
Currently, Google has a clear commercialization path for AI in advertising, cloud services, and subscriptions. Microsoft has introduced corresponding products in Office, Windows, and cloud services.
In the latest financial reports, both Microsoft and Google experienced substantial growth in their cloud services business and increased capital expenditure to support the development of AI infrastructure.
As pioneers in AI technology, Google's valuation is notably lower compared to its competitors.
On the one hand, Google's search business is facing challenges from GPT and Perplexity; but another very important reason is that Google has decided not to pay dividends since the company was founded. Instead of distributing profits to shareholders, Google prefers to invest profits in research and development. This is very unfriendly for managing the company's market value, so the company's valuation is much lower compared to its peers.
Unexpectedly, Google announced its first dividend in this earnings call. Alphabet stated in the earnings call that the board of directors has approved a cash dividend of 20 cents per share to shareholders registered as of June 10, to be paid on June 17, and they "intend to continue paying quarterly cash dividends in the future." In addition, the company has authorized an additional $70 billion stock buyback. Following the earnings call, Google rose by 12.18%, increasing its market value by nearly $236.2 billion.
Overall, the sustained prosperity of the AI industry has brought a shining moment for "AI shovel sellers." As a crucial part of the artificial intelligence infrastructure, the demand for computing power cards will continue to grow. How will AI shovel sellers further expand their market and explore new growth potential in the future? It is worth looking forward to.
Here are the key points from the earnings calls of Google and Microsoft:
Google's Q1 Earnings Call:
Microsoft's Q1 Earnings Call:
