AI fuels surge in tech company earnings in Europe and the US

The US stock markets surged on the first-quarter tech earnings, with the Nasdaq surpassing 17,000 for the first time in history on Tuesday. In contrast, the European markets, more heavily influenced by the energy and healthcare sectors, have lost some of their lustre in recent weeks. Nonetheless, the enthusiasm surrounding artificial intelligence (AI) has been driving tech earnings on both sides of the Atlantic. AI has become a powerful force for firms to embrace, spearheaded by the technology sector.

AI remains a key focus in tech earnings calls

Artificial intelligence (AI) continues to drive earnings growth in technology companies, particularly in the US stock markets. According to FactSet, in the first quarter of 2024, 199 companies mentioned “AI”, the highest number in the past 10 years. The term “AI” was most frequently mentioned by Meta Platforms, Nvidia, and Microsoft, each citing it at least 50 times in their earnings calls. These three companies recorded meteoric growth in the first quarter, with annual revenue increases of 27%, 262%, and 17% respectively. Their shares rose by 36%, 130%, and 14% year-to-date in 2024.

Meanwhile, major European technology companies did not generate as much buzz as their US counterparts. This may be attributed to a tougher macroeconomic environment, as the euro area economy stagnated in late 2023, despite a mild recovery in the first quarter. Additionally, the US-China trade tensions and China’s economic slowdown have adversely affected the profitability of European tech companies.

However, the underperformance of these European companies may present an opportunity for an upgrade in market valuation. The highest-valued European tech company, ASML, could be poised to benefit from the CHIPS and Science Act, which provides subsidies to the Dutch tech giant’s main customers, such as TSMC, Intel, and Samsung. TSMC, a Taiwanese semiconductor manufacturer, dominates AI chip production worldwide.

Siemens expressed a similar outlook for the second half of the year, despite a 38% drop in net income due to weakened demand in China. In its earnings statement, the German technology conglomerate indicated that strong momentum would persist in the data centre and power distribution markets. CEO Roland Busch stated that “unprecedented growth in AI applications is driving a massive buildout of data centres globally, with soaring demand for power.

Tech companies begin profiting from AI advancement

Since Microsoft launched ChatGPT in February 2023, tech giants have embarked on a race to develop AI-powered chatbot software. This AI race has now evolved into the construction of supercomputing data centres to support the training of Large Language Models (LLMs), necessitating billions of dollars in investment.

Nvidia is the primary and direct beneficiary of the AI boom due to its exclusive designation as a leading provider of Graphics Processing Units (GPUs). Other top US tech giants, such as Microsoft, Alphabet, and Amazon, have also started reaping the benefits of massive investments in AI developments, as reflected in their first-quarter earnings reports. Significant growth was particularly evident in these companies’ cloud businesses, which have greatly benefited from advancements in AI.

Echoing the US AI boom, German software company SAP announced a restructuring plan aimed at transforming the business to focus more on AI development, resulting in approximately 8,000 job cuts. The company reported strong first-quarter earnings, with an 8% increase in revenue and a 24% jump in its cloud sales. Consequently, SAP’s shares climbed 8% since the unveiling of the earnings results. SAP has extended the AI capabilities built into the premium version of its cloud offering. “Generative AI is opening up new avenues for innovation and growth for businesses,” the company stated.

Mining companies benefit from the AI boom

Not only are software and chip makers benefiting from the AI boom, but mining companies have also experienced positive momentum due to rapidly rising industrial metal prices, particularly in copper. Stocks of the major miners such as Anglo-American, Glencore, Rio Tinto, and BHP all demonstrate uptrends amid the surge in metal prices.

In its production report, Glencore anticipates being on track to achieve the top end of its guidance range, buoyed by strong commodity prices. Additionally, the drama surrounding BHP’s takeover offer to Anglo-Americans underscores the profitability of the industry in copper production. The latter’s share price surged by 30% based on year-to-date performance.