AI delivers despite volatility

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Nasdaq futures are pointing 1.2% lower ahead of the US market open on Thursday, after Alphabet shares fell almost 10% in after-hours trading on Wednesday and Samsung Electronics slid over 4% following their respective results. Alphabet’s September-quarter sales from most of its core businesses came in below market expectations, while Samsung’s chip operations missed estimates and capital expenditure expanded. The South Korean company also delayed the details of a new shareholder return plan until the end of January.

But Alphabet’s cloud revenue growth accelerated, and Samsung’s record quarterly profits were nearly nine times higher than a year ago. Microsoft’s Azure Cloud also exceeded expectations, while Oracle beat estimates on both its top and bottom lines.

The market reaction to the latest set of tech results underscores the elevated expectations going into the reporting season and a sharpening investor focus on AI monetization. Amazon’s results due later today are another catalyst to watch.

Without commenting on individual companies, we think recent tech results reinforce our view that AI fundamentals remain robust overall and support our constructive outlook on the AI trade.

The acceleration in cloud growth demonstrates hyperscalers’ ability to generate returns on their AI investment. With investors increasingly demanding evidence on AI monetization, the acceleration in cloud revenue growth is one of the key highlights in recent results. Alphabet’s Google Cloud posted a year-over-year revenue jump of 103%, up from 82% in the prior quarter, and 34% in the March quarter. Microsoft’s Azure grew 48% for the three months to September, compared with 43% for the June quarter, while Oracle’s growth also quickened to 62%, from 47%. All three companies offered a positive outlook for further cloud growth, saying that additional capacity could support the strong demand they are seeing in the pipeline.

Monetization of AI products also showed encouraging trends. While cloud growth is a key metric in assessing the return on AI investment, there are increasing signs of monetization across AI products as well. Microsoft reported an eight-fold increase in large Copilot accounts, while Alphabet said its Gemini reached 1 billion users. A leading AI lab recently reported that compute costs are now less than 60% of its revenues, and that AI spending from its large enterprise customers only account for less than 1% of their total expenses.

Robust capex should continue to support the compute complex amid robust demand. Microsoft reduced its 2026 capex guidance slightly, from USD 175bn to USD 170bn, but stated that investment will accelerate in the coming year. Alongside Meta’s recent equity raise and Alphabet’s signal of significant capex increase in 2027, we believe the robust growth in overall AI capex should continue to benefit quality semiconductor and hardware names, driving the industry’s earnings growth. While funding pressures and execution risks at specialized AI cloud providers warrant caution, rising GPU rental prices point to still robust demand for AI compute capacity amid supply constraints.

So, we think AI remains a key growth engine for markets, and we continue to see opportunities in hyperscalers as well as high-quality semiconductor and hardware companies. Investors, however, should manage overly concentrated positions by considering exposure to more defensive areas of tech and diversifying across sectors and regions. Those willing and able to tolerate associated risks can use structured strategies with capital preservation or yield generating features to manage potential volatility.