Why the AI Stock Market Is Splitting in Two
Mr. Market just sent the AI industry a message... It's time to show me the money.
Last Wednesday after market close, Alphabet (GOOGL) and Meta Platforms (META) both reported blowout quarters. Alphabet posted revenue of $109.9 billion – up 22% year over year. Meta wasn't far behind, reporting $56.3 billion in revenue, up 33%.
Both were great results. However, investors couldn't have reacted more differently...
Alphabet soared 10% on April 30... while Meta took a dive in the opposite direction. It shed 9% of its market cap.
By the closing bell, Alphabet had recorded its best day since November... and Meta, its worst day since October.
There's a reason for this: Alphabet has a clearer path to AI revenue...
On Alphabet's earnings call, CEO Sundar Pichai explained the company's AI advantage. Alphabet is the only provider with a full stack of AI solutions, from chips to large-language-model agents.
Plus, AI is starting to lift its top line. Google Cloud revenues soared 63% year over year last quarter as customers flocked to Alphabet's AI offerings.
Meta, on the other hand, has no cloud services. Its main path to AI revenue is through advertising. But it's unclear how much return on investment Meta will get out of its massive AI spend.
In short, Meta is making promises... but Alphabet is making real revenue. That's why the companies diverged on Thursday.
But this isn't the only "show me the money" story this earnings season. This narrative just played out again – with one of the world's leading chipmakers...
Investors Want Companies That Can Monetize AI
On the same night those two leaders announced earnings, we saw a yo-yo move in chipmaker Qualcomm (QCOM)...
Qualcomm fell 5% on earnings. But before the night was over, it had stormed back double digits.
Like Alphabet and Meta, Qualcomm reported a stellar quarter. The company posted adjusted earnings of $2.65 per share on $10.6 billion in revenue – both of which beat estimates.
Qualcomm's quarterly report showed promise... but promise wasn't enough. Like Meta, it had no obvious path to AI revenue. So the stock crashed 5% in the 10 minutes following the release.
But then something unusual happened...
See, Qualcomm's report held an important detail not found in the numbers... The company announced that it's "entering the custom silicon space [and] beginning [its] ramp with a leading hyperscaler." The first round of chips is scheduled to ship this December.
In other words, Qualcomm could soon provide custom-built data-center chips for an AI hyperscaler or cloud-computing company. We don't know the name of this company yet... But it's part of Qualcomm's early steps into the data-center market. And management hinted that the deal could be long term.
As Qualcomm's CEO Cristiano Amon remarked, "It is a large hyperscaler, and we're really thinking about a multigeneration engagement."
Once investors took a moment to read the report, they clocked this new revenue source. Qualcomm's sell-off reversed, and the chipmaker soared 18% in less than half an hour.
You can see the entire whipsaw in the chart below. The whole move took place between 4 p.m. and 5 p.m. Eastern time. Take a look...
QCOM's roller coaster reflects the same story that just played out between Alphabet and Meta. When the market thought Qualcomm had no plan to monetize AI, it sold off shares despite the company's great quarter.
But once traders saw Qualcomm's path to AI revenue, they repriced the stock again – even more dramatically.
The stakes are rising in today's stock market...
Stocks have been climbing on the promise of AI-based gains. Now that those gains are starting to appear on hyperscalers' balance sheets, the market is having a "show me the money" moment. Don't get caught holding the highfliers that can't.
Good investing,
Sean Michael Cummings
Editor's note: Two financial legends are predicting a paradigm shift that could reset the market... and cause the Magnificent Seven to plummet. They recently joined forces to reveal the six companies that could get left behind in the AI era... plus a new company that could make investors a lot of money in this trend's second wave. But don't wait – you don't want to be caught chasing yesterday's winners.
Further Reading
"The simple mention of AI is enough to lead to quick swings in the stock market," Joel Litman writes. Only some AI companies will change industries... Others are just noise. The trick is learning to separate the real disruptors from the hype.
"Investment 'mirages' will cost you almost every time," Porter Stansberry says. Navigating the markets can sometimes feel a lot like traversing the desert. If you're going to survive – and thrive – you need to know more than just the basics.
Market Notes
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Intel (INTC)... semiconductors
Advanced Micro Devices (AMD)... semiconductors
Micron Technology (MU)... semiconductors
STMicroelectronics (STM)... semiconductors
Cisco Systems (CSCO)... networking tech
Nokia (NOK)... networking tech
Ciena (CIEN)... telecom equipment
Iron Mountain (IRM)... data-storage REIT
Altria (MO)... cigarettes
Casey's General Stores (CASY)... convenience stores
Starbucks (SBUX)... coffee "World Dominator"
Ryder System (R)... logistics
Caterpillar (CAT)... heavy machinery
MasTec (MTZ)... infrastructure and engineering
Halliburton (HAL)... oil services
Cenovus Energy (CVE)... oil and gas
HF Sinclair (DINO)... oil refinery
NEW LOWS OF NOTE LAST WEEK
Brown & Brown (BRO)... insurance
Abbott Laboratories (ABT)... health care giant
Clorox (CLX)... cleaning supplies
Lululemon Athletica (LULU)... athleisure
NVR (NVR)... homebuilder