GOOGLE VS AMAZON
AI has been the story driving markets for many months, sending company valuations higher while investors have been hyper-focussed on anything connected to future development in AI. As the earnings season unfolds, the focus is now more on whether the numbers justify the enthusiasm and less about the big promises made about potential growth. Google and Amazon reported their latest results recently, giving further clues on how two huge technology companies are performing and how well placed they are to benefit.
- EARNINGS SEASON: SOLID NUMBERS KEEP THE PARTY GOING
With almost 60% of companies posting earnings results so far some 76% of companies have posted better than expected earnings. In other words, it’s been a solid earnings season. Earnings growth for S&P 500 companies has been 13%, that’s the fifth quarter in a row of double digit earnings growth. The tech sector has again led the charge, with IT sector stocks seeing the largest increase in earnings growth this quarter. The market reaction has been broadly positive, but volatile. The earnings season kicked off with the S&P 500 at an all time high have caused volatility in the market since then.
- GOOGLE AND AMAZON RESULTS AMID MARKET CAUTION
Google and Amazon posted their results in the middle of the earnings season straight after major names such as Microsoft and Apple posted theirs. Both companies released better than expected earnings results. Both outlined success in digital advertising and very strong demand in cloud services, boosting company revenues. But Google and Amazon fell after market trading despite the positive results and it was broadly the same reason: concerns about heavy planned expenditure in AI. Google, Amazon, Microsoft and other companies are currently involved in a type of ‘arms race’ to dominate AI development. On the one hand this is seen as a positive by the markets, but on the other, it leaves questions on whether this spending could exceed the potential revenue made from AI products. This is one of the major reasons there has been market caution / volatility on AI linked stocks in recent weeks.
- JITTERS IN THE MARKET ARE LEGITIMATE?
The fact is that some market watchers last year were already predicting a temporary pullback for AI linked stocks. They argued that AI stocks had jumped too high, too soon and would see a pullback in the first half of 2026. It’s not uncommon for ‘bearish’ traders to claim that stock prices are overpriced in any period, but when parallels are drawn to the dot com bubble, which saw tech stocks crash after two years of sharp gains, cynics suggest the same could happen with AI. But while most analysts believe AI is here to stay, there have been concerns over high valuations. In recent weeks a smaller tech company Anthropic began releasing AI tools that are cheaper and rival existing products from Microsoft. Last year NVIDIA sank for a period after a Chinese company produced similar results with its own AI chips at a fraction of the cost. The fear is that a smaller, leaner company could produce similar AI products without the massive spending and take part of the market.
- WHAT DOES THIS MEAN FOR AI STOCKS LIKE AMAZON AND GOOGLE?
In the short term and perhaps in the long term it seems unlikely that either company can be threatened from newcomers, although volatile price movements particularly under President Trump’s administration, appear inevitable. For Google, advertising remains at the centre of its success. Results showed that search and digital advertising performed well, easing worries that AI could change search behaviour for now. Google does not want people to use chatbots to replace that service. Both Amazon and Google into new revenue streams and durable profits. Amazon’s profitable AWS division is also holding up. It appears that the strategy to dominate AI is partly to prevent AI from undermining existing revenue.
Conclusion
Both companies remain well placed to be at the centre of the AI economy. While there are issues, shared by the wider tech sector, that could cause price swings in the coming period, it’s likely that they have strategies to resolve their issues. New products and software will continue to be created and the medium term outlook is bright amid ongoing demand for AI products and a supportive White House for the industry overall. The growth story for AI is still far from over.