Tech’s earnings bonanza this week shines spotlight on growing troubles at Tesla, Google

As
tech’s
behemoths
get
set
to
report
earnings
this
week,
they
do
so
facing
a
mountain
of
drama.

At


Google,
there
have
been
protests
and
restructurings,
while


Tesla
just
announced
mass
layoffs,
price
cuts
and
a

Cybertruck
recall.


Microsoft’s
OpenAI
relationship
faces
fresh
scrutiny
and
Facebook
parent


Meta’s
major
rollout
of
its
new
artificial
intelligence
assistant
last
week
didn’t
go
so
well.

The
troubling
news
comes
alongside
a

generative
AI
gold
rush,
as
Big
Tech
players
race
the
new
technology
into
their
vast
portfolios
of
products
and
features
to
ensure
they

don’t
fall
behind
in
a
market
that’s predicted
to

top
$1
trillion in
revenue
within
a
decade.

Wall
Street
has
been
openly
jittery
about
the
upcoming
results,
pushing
the
tech-heavy

Nasdaq
Composite
down

5.5%
last
week,
the
steepest
weekly
slump
since
November
2022.


Nvidia,
which
has
emerged
as
an
AI
darling,

plunged
14%,
leading
the
slide.

“Whether
this
tech
sell-off
continues,
I
think
really
depends
on
how
the
mega-cap
tech
reports,”
said
King
Lip,
chief
strategist
at
BakerAvenue
Wealth
Management,
in
an

interview
with
CNBC’s
“Closing
Bell”
on
Monday.
“Valuations
have
definitely
been
more
reasonable
now,
now
that
we’ve
had
a
little
bit
of
a
correction.”

Lip
said
that
in
the
last
couple
of
weeks
his
firm
has
“trimmed
some
of
our
tech
exposure.”

Tech
companies
have
been
pouring
record
sums
into
emerging
generative
AI
startups
and
investing
heavily
in
Nvidia’s
processors
to
build
AI
models
and
run
massive
workloads.
While
that
market
is
growing
rapidly,
investors
are
growing
anxious
that
other
issues
at
hand
could
lead
to
a
pullback
in
spending.

On
this
week’s
earnings
calls,
companies
are
likely
to
continue
highlighting
their
efforts
to
cut
costs
and
bolster
profits,
an

efficiency
theme
that’s
been
running
across
the
industry
since
early
last
year.

Tesla
kicks
off
tech
earnings
season
after
the
close
of
trading
on
Tuesday,
with

shares
of
the
electric
vehicle
maker
trading
at
their
lowest
since
January
2023.
Meta,
coming
off
its
biggest
weekly
stock
slide
since
August,
follows
on
Wednesday.
Microsoft
and
Google
parent
Alphabet
report
on
Thursday,
giving
Wall
Street
a
close
look
at
how
businesses
are
planning
their
budgets
for
AI
infrastructure.

Here
are
some
of
the
biggest
issues
facing
the
Big
Tech
companies
in
their
reports
this
week.

Tesla
shares
fell
for
a
seventh
straight
day
on
Monday
and
are
now
down
43%
year
to
date.

Elon
Musk’s
EV
company
is
expected
to
report
a
decline
in
sales
of
about
5%,
which
would
be
the
first
year-over-year
revenue
drop
since
2020,
when
the
Covid
pandemic
disrupted
operations.

Tesla’s
earnings
follow
a
bruising
quarterly

deliveries
report
and
additional
price
cuts
to
the
company’s
vehicles
and
its
premium
driver
assistance
system.

Last
week,
the
EV
maker
said
it
was
laying
off
more
than
10%
of
its
workforce,
and
the
same
day
executives
Drew
Baglino
and
Rohan
Patel
announced
their

departures.

“As
we
prepare
the
company
for
our
next
phase
of
growth,
it
is
extremely
important
to
look
at
every
aspect
of
the
company
for
cost
reductions
and
increasing
productivity,”
Musk
wrote
in

a
memo
announcing
the
layoffs.

Two
days
later,
Musk informed
employees

via
email
that
the
company
had
sent
out
“incorrectly
low”
severance
packages
to
some
laid-off
workers.
And
on
April
12,
Tesla issued
a

voluntary recall of
more
than
3,800
Cybertrucks
to
fix
a
“stuck
pedal”
issue
depicted
in
a
viral TikTok
video.

“Since
late
2023,
sentiment
on
Tesla
(TSLA)
has
deteriorated,”
wrote
John
Murphy,
an
analyst
at
Bank
of
America,
in
a
note
on
Monday.

Meta
has
been
a
good
bet
for
investors
this
year
despite
last
week’s
slip.
The
stock
is
up
36%
in
2024
after
almost
tripling
last
year,
when
CEO

Mark
Zuckerberg
told
Wall
Street
that
2023
would
be
the
company’s

“year
of
efficiency.”

But
Meta
still
faces
plenty
of
questions.
For
one,
its
Reality
Labs
division,
which
houses
all
of
the
virtual
reality
technologies
for
the
nascent
metaverse,
is
expected
to
show
a
quarterly
loss
of
over
$4
billion
for
a
second
straight
period.

When
it
comes
to
AI,
Meta
debuted
its
assistant
—
Meta
AI
—
on
WhatsApp,
Instagram,
Facebook
and
Messenger
last
week.
It
was
the
company’s

biggest-ever
AI
initiative
and
is
set
to
go
up
against
OpenAI’s
ChatGPT
and Google‘s
Gemini.

But
Meta
AI
quickly
led
to
controversy.
The
assistant
reportedly
joined
a
private
parents’
group
on
Facebook
and
claimed
to
have
a

gifted
and
disabled
child,
sounding
off
in
the
comments
about
its
experiences
with
New
York-area
educational
programs.
In

another
case,
it
reportedly
joined
a
Buy
Nothing
forum
and
tried
to
do
free
giveaways
for
nonexistent
items.

Now,
Meta
has
to
show
that
it’s
ready
for
what’s
certain
to
be
a
heated
election
season,
as
President
Joe
Biden
and
Republican
Donald
Trump
prepare
to
square
off
for
a
second
time.
Dating
back
to
Trump’s
successful
presidential
bid
in
2016,
Facebook
has
been
a
problematic
place
for
political
discourse
and
misinformation.

Meta
is
expected
to
report
revenue
growth
of
26%
from
a
year
earlier
to
$36.16
billion,
according
to
LSEG.
That
would
mark
the
fastest
rate
of
expansion
for
any
period
since
2021.

On
a
busy
Thursday
for
tech
earnings,

Alphabet
is
likely
to
capture
the
most
attention.

Last
week,
finance
chief
Ruth
Porat
announced
a

restructuring
of
Google’s
finance
department,
a
move
that
will
include
layoffs
and
relocations,
as
the
company
drives
more
resources
toward
AI.

On
the
same
day,

Google terminated
28
employees,
according
to
an

internal
memo
viewed
by
CNBC,
following
a
series
of
protests
against
labor
conditions
and
the
company’s
contract
to
provide
the
Israeli
government
and
military
with
cloud
computing
and
artificial
intelligence
services.

The
dismissals
came
after
nine
Google
workers
were
arrested
on
trespassing
charges
Tuesday
night,
staging
a
sit-in
at
the
company’s
offices
in
New
York
and
Sunnyvale,
California,
including
a
protest
in
Google
Cloud
CEO
Thomas
Kurian’s
office.
The
arrests,
livestreamed
on
Twitch
by
participants,
coincided
with
rallies
outside
Google
offices
in
New
York,
Sunnyvale
and
Seattle,
which
attracted
hundreds
of
attendees,
according
to
workers
involved.

On
Thursday,
Alphabet
CEO
Sundar
Pichai
announced
a

consolidation
of
the
company’s
AI
teams,
including
responsible
AI
and
related
research
teams,
under
the
Google
DeepMind
umbrella.
He
said
in
a
memo
that
“this
is
a
business”
and
employees
should
not
“attempt
to
use
the
company
as
a
personal
platform,
or
to
fight
over
disruptive
issues
or
debate
politics.”

Pichai
has
struggled
to
quell
employee
discontent
on
a
host
of
matters
since
the
pandemic,
as
the
company
has
been
forced
to
reckon
with
slower
growth
than
in
years
past
and
an
investor
base
that’s
become
increasingly
concerned
with
costs.

Analysts
expect
a
first-quarter
revenue
increase
of
13%,
which
would
mark
a
second
straight
quarter
of
year-over-year
growth
in
the
low
teens.
For
four
straight
periods,
between
mid-2022
and
mid-2023,
expansion
was
in
single
digits
as
advertisers
pulled
back
due
to
soaring
inflation
and
rising
interest
rates.

Alphabet
shares
are
up
12%
this
year,
topping
the
S&P
500,
which
has
gained
5.1%.

As
for
Microsoft,
the
company

seemed
to
narrowly
avoid
a
European
Union
antitrust
probe
into
its
relationship
with
OpenAI,
after
EU
regulators
had
pointed
to
the
possibility
earlier
this
year.

Microsoft
has
invested
more
than
$10
billion
in
OpenAI,
whose
ChatGPT
chatbot
kicked
off
the
generative
AI
boom
in
late
2022.
AI
has
been
a
major
focus
of
Microsoft’s
earnings
calls
since
then,
as
the
company
serves
as
OpenAI’s
key
technology
partner
through
its
Azure
cloud
infrastructure.

Microsoft
has
invested
billions
of
dollars
in
AI
startup
Anthropic
as
well,
and
has
taken
stakes
in
Mistral,
Figure
and
Humane.

The
company’s
position
in
AI
has
been
the
biggest
driver
behind
its

ascent
to
$3
trillion
in
market
cap,
passing


Apple
as
the
most
valuable
U.S.
company.
However,
the
stock
is
only
up
6.8%
this
year,
trailing
many
of
its
peers,
and
some
analysts
see
potential
weakness
in
parts
of
Microsoft’s
customer
base,
notably
small
and
medium-sized
businesses.

“MSFT
has
more
SMB
and
consumer
exposure
than
any
other
stock
we
cover,”
wrote
analysts
at
Guggenheim,
in
a
note
dated
April
21.
“And
while
those
cohorts
have
held
up
surprisingly
well
during
this
soft
macro
period,
we
are
starting
to
see
some
indications
of
weakening
demand
from
them.”

Microsoft
is
expected
to
report
sales
growth
of
15%
in
the
first
quarter,
according
to
LSEG,
but
analysts
are
projecting
a
slowdown
over
each
of
the
next
three
periods.