MW Questions over DeepSeek and cloud growth continue with Amazon, Alphabet earnings
By Bill Peters
Earnings Watch: Disney, Chipotle also report results this week
DeepSeek last week shook markets with its promises of lower-cost, lower-energy artificial intelligence that could go head-to-head with platforms like ChatGPT. And as interest in the China-based AI developer's chatbot surged, it raised concerns over whether the biggest U.S. technology companies, who have poured billions into AI themselves, had essentially lit their money on fire.
But after some tech executives on earnings calls last week tried to frame it all as good news, or said they planned to stick to their lofty spending plans, Wall Street will likely be zeroed in on reactions to Amazon.com Inc. and Alphabet Inc. when they report quarterly results this week.
"I'm going to listen for any signs and signals around around capex spend," said Daniel Newman, chief executive of the tech-focused research firm the Futurum Group and a MarketWatch contributor. "Is this impacting them?"
"This week, it hasn't appeared to," he continued. "But upon more reflection, will we hear any more thoughts about infrastructure and capex commitments, especially with how the market's been reacting?"
See also: The blogger who helped spark Nvidia's $600 billion stock collapse and a panic in Silicon Valley
Alphabet reports results on Tuesday. Results from Amazon are due Thursday. Along with any thoughts about the impact of DeepSeek, there will be also questions about what growth in Microsoft's cloud business, after it disappointed disappointed investors last week, might mean for Alphabet $(GOOGL)$ and Amazon $(AMZN)$, whose AWS cloud-computing segment is a large sales driver.
The results will arrive as Amazon comes off the holiday-shopping season, which drove record online spending last year, and as it tries to develop its own lower-cost AI chips and a satellite-based broadband network. But Wedbush analyst Daniel Ives, in a research note last week, said that while he was upbeat on the company, there were "uncertain costs" related to Amazon's satellite ambitions and "rising costs" for AI.
For Alphabet, Ives, in a separate note, said that digital-advertising demand remained strong for both Google and YouTube. But he added that "we think it will be difficult for Alphabet to materially outperform expectations for advertising growth in the near-term, given recent FX headwinds and more challenging comps in 4Q and through 2025."
Not everyone is convinced that DeepSeek can do what it says it can - that is, run like ChatGPT with far fewer Nvidia chips than its big-tech counterparts. And some reports say users are running up against China's censorship protocols.
Still, the company disturbed the established narrative around what it took to make AI smarter - more money, more sophisticated chips, and more data-center capacity - and could add a new dynamic to U.S. competition with China. Wall Street analysts have begun to focus more on the costs and the timing of the payoff of big tech's AI investments. Some tech critics have raised concerns about the impact on the environment, and whether the AI products themselves are actually all that useful.
Microsoft Corp. has invested nearly $14 billion in OpenAI, the massively-valued developer of ChatGPT, but the company last week said that DeepSeek R1, an open-source AI model, was available on its Azure AI Foundry and GitHub.
Satya Nadella, Microsoft's $(MSFT)$ chief executive, told Wall Street analysts last week that broader use of lower-cost AI would benefit customers and lead to the development of more apps and more consumption. He said DeepSeek had some "real innovations," while noting similarities to OpenAI's o1 reasoning model, which OpenAI says is built for complex tasks.
When asked about DeepSeek's potential impact to margins and costs, Apple Inc. $(AAPL)$ Chief Executive Tim Cook, on the iPhone maker's own earnings call last week, expressed optimism.
"In general, I think innovation that drives efficiency is a good thing," he said. "And that's what you see in that model. Our tight integration of silicon and software, I think, will continue to serve us very well."
Meta Platforms Inc. $(META)$ Chief Executive Mark Zuckerberg, meanwhile, said the company was still analyzing DeepSeek's technology, but said they hoped to implement some of it into the company's own systems.
"I kind of expect that every new company that has an advance, that has a launch, is going to have some new advances that the rest of the field learns from, and that's sort of how the technology industry goes," he said. But he said it was too early to gauge what it meant for spending and infrastructure.
Still, Meta and Microsoft said they saw benefits in sticking with their current hefty spending plans. Newman said he felt that AI advancement still required lots of money and computing power, but that DeepSeek underscored the risks of complacency and moving too slowly.
"I think everything needs to be questioned when you have a technology that is going to literally determine the world's economic future," he said. "And if we were sitting by, even a little bit complacent right now, in terms of the pace that we were operating under, this should be a wakeup call for those companies."
This week in earnings
This week, 131 S&P 500 companies, including five from the Dow, report quarterly results, according to FactSet.
Video-game developer Electronic Arts Inc. $(EA)$ reports, as analysts seek more detail about struggles in its key soccer-gaming segment. Ride-hailing platform Uber Technologies Inc. $(UBER)$ reports as investors weigh robotaxi-related concerns, middling stock action and an accelerated share buyback. And handbag maker Tapestry Inc. (TPR) will publish its earnings after it walked away from a merger with Capri Holdings $(CPRI)$, after a judge blocked the deal on competition concerns. Results are also due from toy-maker Mattel Inc. $(MAT)$
Among the other companies reporting this week: Advanced Micro Devices Inc. $(AMD)$, Tyson Foods Inc. $(TSN.AU)$, Palantir Technologies Inc.(PLTR), Clorox Co. $(CLX)$, Spotify Technology $(SPOT)$, PepsiCo Inc. $(PEP)$, Pfizer Inc. $(PFE)$, PayPal Holdings Inc. (PYPL), Snap Inc. (SNAP), Harley-Davidson Inc. $(HOG)$, Ford Motor Co. $(F)$ and Qualcomm Inc. $(QCOM)$
The call to put on your calendar
Disney: Could Walt Disney Co. $(DIS)$ stage a rebound this year? Some analysts say the amusement-park and media giant could be primed for bigger stock gains this year. Rosenblatt Securities analyst Barton Crockett said in December that fading recession fears could benefit its theme-park business - which stumbled a bit last year as inflation made more vacationers skittish - and firmer footing in its streaming business, helped by Hulu and Disney+. More detail on that - as well as potential color on the launch of the Disney Treasure cruise ship and other big investments in its parks and experiences segment - could come when Disney reports quarterly results on Wednesday.
The number to watch
Chipotle sales: outlook Mexican fast-casual chain Chipotle Mexican Grill Inc. $(CMG)$ reports quarterly results on Tuesday. Ahead of the results, some analysts pointed to signs of slowing sales trends, potentially attributable to tough comparisons, harsher weather and the timing of the holidays, which, as Truist analyst Jake Bartlett said last week, may have stretched out vacations and remote work. Wall Street has also been weighing the effects of avocado prices, potential tariffs, wage and price increases, new automation equipment in kitchens, and efforts to make portions bigger and more consistent after customers complained. Still, as fast food chains try to undercut one another on value deals, analysts have said demand at fast-casual chains has held up better.
-Bill Peters
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February 02, 2025 10:01 ET (15:01 GMT)
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