Big Tech’s post-earnings stock performance diverged this week, with clear winners and laggards emerging as Wall Street looks for clear signs of returns on AI investments to determine market leaders.
Meta stock (META) jumped over 10% in one day as investors cheered productivity gains and the integration of AI across the company’s social media apps, advertising and shopping tools, and internal workflows.
Meanwhile, Tesla (TSLA) shares rebounded on Friday after selling off as investors weighed a massive spending forecast after Elon Musk underscored the company’s transition from an electric vehicle maker to autonomous driving and robotics.
And tech giant Microsoft’s stock (MSFT) was hammered following its results amid concerns over slowing cloud growth and massive AI-related spending. Shares in cloud software leaders Salesforce (CRM) and ServiceNow (NOW) also tumbled on worries that AI could disrupt the software-as-a-service model.
“It comes down to monetization. That’s what the Street wants to see here,” Wedbush Securities managing director and global head of technology research Dan Ives told Yahoo Finance on Friday.
“I think what you’re seeing is really a bifurcation in tech. It’s kind of the haves and the have nots, and that’s really what’s playing out across tech earnings,” he added.
The market has been wary of an AI bubble in recent quarters and wants to see that companies’ billions of dollars in investments in the technology are paying off in their results.
“Investors are voting with their feet, and they’re going into sectors where the growth is more obvious to see and they feel like there is durability,” said Wolfe Research managing director and head of software research Alex Zukin.
Still, Wall Street views the recent sell-off in software stocks as overdone, arguing that the benefits of AI will take longer to materialize.
“There’s a lot more complexity associated with enterprise, data, governance, security, compliance, risk, and we think that some of these trends and themes can play out over a longer period of time,” he said, adding, “We’re still in phase zero of adoption.”
The analyst sees buying opportunities in data platform companies such as MongoDB (MDB), data warehouse providers like Snowflake (SNOW), observability vendors such as Datadog (DDOG), and communications platform companies like Twilio (TWLO), all of which have declined in sympathy with broader weakness across software stocks.
One clear theme is on track — strong demand for memory and storage for AI.
