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Alphabet Inc. (NASDAQ: GOOGL) reported earnings for Q4 2023 after the market close on Tuesday, January 30, 2024. What happened during the release and earnings call, and what’s next?

Ads revenue was disappointing: Is the profitability of this business sustainable?

Alphabet reported earnings a bit below expectations for Q4 2023, driving the stock down more than 6% after the release. Alphabet’s core business of Search and YouTube delivered revenues in line with consensus expectations, while the Network search businesses together were -3% below expectations. On an FX-neutral basis, the ad segment only grew 2%, driven only by retail promotions and APAC. Looking ahead to Q1, the company noted on the earnings call that they expect the Ads business to continue to see consumer cost consciousness drive promotional activity.

Given the strong pace that AI is gaining momentum, there are questions about the sustainability of the Ads business model for Alphabet. Based on Visible Alpha consensus, analysts are expecting Google Advertising revenue to be $305 billion by FY 2026, up 28% from FY 2023 levels. Is this too aggressive?

Operating margin was disappointing: How much cost will be pulled out of the business?

The overall operating profit margin of 27.5% for Alphabet came in 60 basis points below Visible Alpha consensus expectations, driven by a combination of higher-than-expected losses in Unallocated businesses. Coming into the quarter, analysts were expecting Alphabet’s level of losses for the Other Bets and Unallocated segments to remain around $2.4 billion, but these surged to nearly $4 billion, driven by reduction in force costs. On the earnings call, the company noted a further $700 million severance expense in Q1.

Ruth Porat, President and Chief Investment Officer, explained that the company will continue to streamline operations, its real estate portfolio, and its vendor spend, supporting slower expense growth. It is worth noting that the company still has not announced a new CFO to replace Porat. Operating expenses currently hover around $90 billion, but are expected to continue to grow to $105 billion by FY 2025, according to Visible Alpha consensus. Research & Development and Sales & Marketing costs make up 80% of the company’s expense base. How will Alphabet continue to drive innovation and competitive positioning in the Ads and Search businesses while reducing costs?

The Cloud bounced in Q4: Will it hit $50 billion in revenues and an 11% margin in FY 2025?

The Cloud business showed quarter-on-quarter improvement with revenues that beat consensus by 2.7%, driving a 9% operating profit margin. In particular, the Cloud business appeared to benefit from cost optimizations getting worked through, combined with the early adoption of AI solutions.

Looking ahead, the revenue growth from the Cloud business is expected to be an outsized chunk of Alphabet’s total revenue growth for FY 2024, meaning it is growing at a much faster 20-25% pace than the 10% expected year-over-year growth for Alphabet’s core Search and YouTube revenue streams. Compared to last quarter, expectations for Cloud sales did not change much after the Q4 earnings release. Cloud revenues are projected to be $41 billion in FY 2024 and $50 billion in FY 2025. However, Visible Alpha consensus estimates for operating profit margin coming into the quarter jumped significantly after the earnings release from 6% to 9% in FY 2024 and from 9% to 11% in FY 2025. Is it too soon to assume that Cloud margin will remain at or above Q4’s 9% level?

Playing catch-up in AI: Cash decline and a CapEx surge

In order to catch up to competitors in the AI space, further investments and CapEx are required.
While the company has a strong cash position of $111 billion, it is worth flagging that this number is down nearly $10 billion from $120 billion in Q3, and its lowest level since FY 2018.

In Q4, CapEx jumped more than expected by $3 billion quarter-on-quarter to $11 billion, “driven overwhelmingly by investment in technical infrastructure, with the largest component for servers, followed by data centers,” according to Ruth Porat on the earnings call. Porat further explained that this uptick in CapEx reflects Alphabet’s “outlook for the extraordinary applications of AI to deliver for users, advertisers, developers, Cloud enterprise customers, and governments globally and the long-term growth opportunities that it offers.”

In addition, Porat guided for CapEx to be “notably larger” in 2024, implying that investment is going to be pulled forward and seems to be chasing Microsoft. Microsoft’s CapEx started to surge meaningfully last year and is projected to hit $42 billion, which likely enabled it to take a lead in AI. Based on Visible Alpha consensus, Alphabet’s CapEx is expected to surge by $11 billion from $32 billion in FY 2023 to $43 billion in FY 2024, which now matches Microsoft’s CapEx levels. Longer term, too, Alphabet’s CapEx expectations jumped to $48 billion in FY 2026, up from $43 billion last quarter. Will Alphabet’s investments in AI start to give it an edge without burning more cash?

Figure 1: Key Financials for Alphabet

Alphabet Key Financials

Source: Visible Alpha consensus (January 31, 2024)

Amazon.com, Inc. (NASDAQ: AMZN) will report Q4 2023 results on Thursday, February 1, 2024. Here are the key numbers that we’re watching.

Figure 1: Amazon – consensus expectations for Q4, past earnings surprises, revisions, and CAGR

Amazon com Earnings Preview

Source: Visible Alpha consensus (January 26, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Amazon Q4 2023 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q4 have come up slightly from the beginning of last year, from $163 billion to $166 billion, driven by strength in Amazon’s online retail and advertising businesses, while AWS expectations have come down. The focus will likely be on the Q4 performance and 2024 outlook for the online retail and AWS margins and their impact on EPS.

The North America retail operating margin has increased significantly from a meager 1.1% at the beginning of last year to 4.3% now, ahead of Q4 earnings. Operating margin expectations for North America have remained at current levels since October. For 2024, the estimated margin ranges from 3.6% to 6.3%, with consensus at 5.1%. What will the company say about the outlook for the online business?

AWS margin came in at 30% last quarter, and has steadily increased back to the expected 28% level forecast at the beginning of last year for Q4 and 2024. There is, however, a significant range of estimates for the Q4 AWS margin into this week’s release, with analysts expecting from 24% to 31%.

The stock has traded up over 30% since last quarter’s October release, outperforming the S&P 500. Could the Q4 release provide the next positive catalyst for the stock?

Figure 2: Amazon consensus estimates

Amazon com Consensus Estimates

Source: Visible Alpha consensus (January 26, 2024). Stock price data courtesy of FactSet. AMZN’s current stock price is as of the market close on January 25, 2024.

Apple Inc. (NASDAQ: AAPL) will report fiscal Q1 2024 results on Thursday, February 1, 2024. Here are the key numbers that we’re watching.

Figure 1: Apple – consensus expectations for Q1, past earnings surprises, revisions, and CAGR

Apple Inc Earnings Preview

Source: Visible Alpha consensus (January 26, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Apple Q1 2024 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q1 have come down from the beginning of last year, from $127 billion to $118 billion, driven by decreased optimism about the iPhone. Since November, total expected iPhone unit sales have remained lower at 75 million, driven by debate among analysts about the performance of the new iPhone 15 series during the holiday season. Expected Q4 iPhone units range from 70 million to 82 million, with most of the difference explained by variance in estimates for the iPhone 15 specifically, ranging from 41 million to 60 million units.

While iPhone sentiment has come down, expectations for the high-margin Services segment and for total operating profit have remained consistent since Q3 2023. Gross margin for the Services segment is over 70%, significantly higher than the 36% gross margin for Products. It will be interesting to hear what the company says in the earnings release about growth in Services and if this is enough to offset any sluggishness in iPhone sales.

The stock has traded up 9% since last quarter’s November release, underperforming other Big Tech stocks and the S&P 500. Could the Q1 release provide a positive catalyst for the stock?

Figure 2: Apple consensus estimates

Apple Inc Consensus Estimates

Source: Visible Alpha consensus (January 26, 2024). Stock price data courtesy of FactSet. AAPL’s current stock price is as of the market close on January 25, 2024.

Meta Platforms, Inc. (NASDAQ: META) will report Q4 2023 results on Thursday, February 1, 2024. Here are the key numbers that we’re watching.

Figure 1: Meta Platforms – consensus expectations for Q4, past earnings surprises, revisions, and CAGR

Meta Platforms Earnings Preview

Source: Visible Alpha consensus (January 26, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Meta Platforms Q4 2023 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q4 have remained at $39 billion and operating profit from the Family of Apps at $20 billion since Q2 2023, driven by solid performance. However, there is debate among the analysts into Q4 for the Family of Apps’ income from operations, with estimates ranging from $15.8 billion to $21.7 billion.

For 2024, expectations for operating income from the Family of Apps have increased from $71.9 billion last quarter to $73.6 billion ahead of Q4 earnings, driven by better efficiency in the business. In addition to the continued expected efficiencies in the Family of Apps segment, projected losses from Reality Labs have decreased further since last quarter for both 2024 and 2025, suggesting efficiency is expected to continue to have an impact here too. Will Meta be able to continue managing costs in 2024?

The stock has been an outperformer since last quarter, up more than 30%. What new information will come out of the Q4 release that could potentially maintain the positive momentum?

Figure 2: Meta consensus estimates

Meta Platforms Consensus Estimates

Source: Visible Alpha consensus (January 26, 2024). Stock price data courtesy of FactSet. META’s current stock price is as of the market close on January 25, 2024.

Netflix Inc. (NASDAQ: NFLX) reported Q4 2023 results on Tuesday, January 23, 2024.  What happened in Q4 and what may be next?

In a pivot from the usual recorded interview, Netflix live streamed their earnings call on YouTube. Spencer Wang, vice president of finance, hosted the call and asked the co-CEOs questions. The discussion and debate from the earnings interview were around the growth of engagement and monetization and the potential for advertising to drive revenues while maintaining margin.

1. How is the landscape shifting for Netflix?

In previous quarters, Netflix shared a Nielsen chart showing a breakdown of major players’ share of TV screen time in the U.S., where YouTube has been leading. This quarter, however, in addition to the U.S. data they included Nielsen data from other key markets, including Brazil and Mexico, where YouTube leads by a substantial margin.

Given the recent WWE announcement and the newly livestreamed earnings call, is Netflix looking to provide more live events? While the company noted on their call that they prefer to build and not buy, could more partnerships be in the works?

Figure 1: Share of TV screen time

Nielsen Share of Viewing Data

Source: Netflix Q4 Shareholder Letter (January 23, 2023)

New question: Going forward, how will live events play a role in Netflix’s content offering?

2. What happened in Q4 and how has the outlook changed?

Revenue

Q4 performance: Q4 year-over-year revenue growth of 12% was $115 million ahead of consensus estimates, driven by strong net adds. The company reported 13 million new subscribers, driven by both the U.S. and overseas regions. The UCan market added 2.81 million new subscribers, which demonstrated that its new paid-sharing program has worked. There is concern that password-sharing customers have been pulled forward, and could show a slowdown going forward.

Q1 2024 expectations: The company guided Q1 to 13% year-over-year revenue growth with revenue of $9.3 billion, in line with consensus estimates, and supported by the continued positive expected revenue impact of paid-sharing, growth of the ads business, and further monetization. Regarding pricing, the company will be providing a range of prices and plans.

FY 2024 expectations: The company expects to grow revenues by increasing engagement trends and reducing churn with a more diverse entertainment offering. Gaming and the growth of ads could be key drivers in 2024. According to Visible Alpha consensus, analysts expect the company to generate revenue of $38.6 billion in FY 2024, up from expectations of $38 billion in January 2023.

Operating profit

Q4 performance: Netflix delivered Q4 operating profit of $1.9 billion and a 17% operating profit margin, almost $300 million ahead of consensus estimates coming into the quarter.

FY 2024 expectations: Looking ahead, the operating profit margin outlook for FY 2024 is now expected to be 24%, up from 22-23%, driven by the strength in Q4 continuing into 2024 and an assumption around a weaker dollar.

Longer-term: The company did not give a long-term margin target. Based on Visible Alpha consensus, operating profit margin is expected to grow from 24.1% in FY 2024 to 30% in FY 2027. Currently, consensus estimates project an improvement from FY 2024 in the operating margin, and for this to grow to 30% by the end of FY 2027, which may be aggressive given the investment likely required to scale the ads business. There is significant debate among analysts with respect to FY 2027 margin estimates, which range from 26% to 33%.

New question: Is the longer-term pace of margin expansion too aggressive?

3. What additional visibility into the Ads business was provided in the Q4 release?

According to the company, in Q4, ads membership increased 70% quarter-on-quarter and accounts for 40% of new sign-ups, up from 30% last quarter. In the Q4 shareholder letter and earnings call, management highlighted that they aim to drive engagement to attract advertisers, which they expect to help the ads business continue to scale.

Netflix remains upbeat about the long-term opportunity, given the size of their user base. The company continues to have work to do on advertising business features, both to scale and to build out the technical capabilities, in order to create formats that brands will value. In particular, the company called out the need to continue improving the targeting and measurement they offer to their customers.

Long-term ad-supported revenue expectations: Currently, consensus estimates project total ad-supported revenue to expand to nearly $10 billion by the end of FY 2027, up over 15x from FY 2023 levels. There is a significant range of views on the magnitude of this growth. For FY 2027, analyst estimates range from $3.9 billion to $18.6 billion, which narrowed from $2.9 billion to $19.6 billion last quarter.

New question: How big can the ads business become?

Figure 2: Key financials for Netflix

Netflix Consensus Expectations

Source: Visible Alpha consensus (January 25, 2023)

Microsoft Corporation (NASDAQ: MSFT) will report fiscal Q2 2024 results on Tuesday, January 30, 2024, after the market close. Here are the key numbers that we’re watching.

Figure 1: Microsoft – consensus expectations for Q2, past earnings surprises, consensus revisions, and CAGR

Microsoft Earnings Preview

Source: Visible Alpha consensus (January 24, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Microsoft Q2 2024 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q2 have remained around $61 billion since October, driven by resilience in its core business segments. In particular, the Intelligent Cloud segment, which makes up over 40% of total revenues, is projected to remain solid, with consensus estimates around $104 billion for FY2024, driven by Azure. The profitability of this segment is a source of debate among analysts. Currently, the Q2 2024 consensus of 14 analysts for the Intelligent Cloud business’s operating profit margin is 44%, but ranges from 41% to 47%, suggesting this segment may deliver a surprise in the Q2 release.

We are closely watching what the company will say about the outlook for AI and Copilot, as Microsoft’s FY 2024 CapEx numbers have continued to increase steadily since last year. According to consensus projections, CapEx estimates have climbed $13 billion from $29 billion in January 2023 to currently $42 billion in FY 2024, up 3x from FY 2019 and ahead of both Meta’s (NASDAQ: META) and Alphabet’s (NASDAQ: GOOGL) estimated CapEx levels.

Microsoft stock has traded up 21% since the October earnings release, and is up 9% year-to-date, outperforming the S&P 500. Could the Q2 release help drive further growth and momentum in the stock?

Figure 2: Microsoft consensus estimates

Microsoft Consensus Estimates

Source: Visible Alpha consensus (January 24, 2024). Stock price data courtesy of FactSet. Alphabet stock price is as of the market close on January 23, 2024.

Alphabet Inc. (NASDAQ: GOOGL) will report Q4 2023 results on Tuesday, January 30, 2024, after the market close. Here are the key numbers that we’re watching.

Figure 1: Alphabet – consensus expectations for Q4 2023, past earnings surprises, consensus revisions, and CAGR

Alphabet Earnings Preview

Source: Visible Alpha consensus (January 24, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Alphabet Q4 2023 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q4 2023 have remained around $85 billion since January 2023, driven by resilience in its ad business. In addition, the Q4 consensus expectations for operating income and EPS have remained around $24 billion and $1.61/share since July 2023.

We are closely monitoring the trend of the Cloud business, given last quarter’s margin disappointment. The operating profit margin, which turned positive in Q1 2023 and showed further improvement in Q2, missed expectations in Q3 by 200 bps, coming in at 3% instead of 5%. Looking ahead to Q4, analysts expect the Cloud business to generate a 4% operating profit margin, down 200 bps since July 2023. However, analysts expect the Cloud business operating profit margin to jump back to 6% in FY 2024 and, longer-term, to generate a 9% margin by FY 2025. Is this expectation still too high?

Alphabet stock has traded up 6% since last quarter’s October release and up 8% since the beginning of the year, outperforming the S&P 500. The stock has remained resilient, driven by solid ad growth in its core business. However, questions remain about the profitability of the Cloud business and its Unallocated and Other Bets. Could the Q4 release provide more visibility into the trajectory of 2024 profitability?

Figure 2: Alphabet consensus estimates

Alphabet Consensus Estimates

Source: Visible Alpha consensus (January 24, 2024). Stock price data courtesy of FactSet. Alphabet stock price is as of the market close on January 23, 2024.

Netflix Inc. (NASDAQ: NFLX) will report Q4 2023 results on Tuesday, January 23, 2024. Here are the key numbers that we’re watching.

Figure 1: Netflix – consensus expectations for Q4 2023, past earnings surprises, revisions, and CAGR

Netflix Earnings Preview

Source: Visible Alpha consensus (January 22, 2024). “Surprise” indicates the direction that specific line items beat or missed. “Revisions” show the trajectory of line items from a given date.

Netflix Q4 2023 Earnings Preview

According to Visible Alpha consensus, total revenues of $8.7 billion and operating income of $1.2 billion expected for Q4 have remained flattish from last quarter, driven by solid expectations for U.S. streaming. Since last quarter, ad-supported revenue has been revised upward 28% from $72 million to $92 million. While there does not appear to be a shift in expectations from the October quarter, questions remain around the investments in the ad-tier, the full impact of the strikes, and increased competition and its impact on paid-sharing.

The stock has traded up around 40% since last quarter’s October release and has remained higher (currently around $483), close to its 52-week high of $495, driven by optimism around the strikes ending and resilience in their net adds. Will the outlook for 2024 support the upward trajectory of Netflix’s stock price?

Figure 2: Netflix consensus estimates

Netflix Consensus Estimates

Source: Visible Alpha consensus (January 22, 2024). Stock price data courtesy of FactSet. Netflix stock price is as of the market close on January 19, 2024. “Ad-supported revenue – Advertising – UCAN Streaming” is a new line item that recently started to be modeled by analysts.

The Visible Alpha AI Monitor aggregates publicly-traded U.S. technology companies, providing a comprehensive measure of the current state and projected growth of the core AI industry. This encompasses the AI-exposed revenues for companies that are building AI infrastructure and capabilities for both enterprises and consumers.

Investors may use the Visible Alpha AI Monitor to generate new ideas to capture growth emanating from the core AI industry, as well as to evaluate the potential AI exposure of technology stocks in their existing portfolios.

We have identified specific line items that capture potential growth of AI-related revenues that are available in the Visible Alpha Insights platform (see the goals, objectives, and methodology of the AI Monitor towards the bottom of this page).

Figure 1: AI growth and performance overview

Figure 1: AI growth and performance overview

Source: Visible Alpha consensus (January 16, 2023). Stock price data courtesy of FactSet. Current stock prices are as of the market close on January 12, 2023. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI.

Key Takeaways from 2023

In 2023 (see our Dec 2023 AI Monitor report), eight out of the 10 largest AI-exposed revenue generators drove strong outperformance, while more than 50% of the smaller-cap AI stocks underperformed. In December, AI-exposed revenues were expected to grow by almost $250 billion, from $382 billion at the end of 2022 to $627 billion at the end of 2025, driven overwhelmingly by the Top 10 in the AI Monitor. The revenue growth of the Top 10 was driven almost exclusively by the significant $150 billion of upward revisions analysts made to Nvidia’s AI-exposed Data Center revenues, which contributed significantly to both the AI-exposed revenue concentration and stock performance of the AI Monitor. How may these dynamics change in 2024?

What to Watch For in 2024

In 2024, we are watching the pace at which companies will be moving more of their data to the cloud and enabling innovation with AI. The AI Monitor aims to help users observe the pace of data migration to the cloud by highlighting companies and line items. In particular, we have identified a few companies that we are watching.

We are closely tracking the performance of Oracle’s Cloud Services and Microsoft Azure’s Infrastructure and Platform as a Service businesses. Together, this partnership may bring more organizations to the cloud and position enterprises for integrating AI into their workflows.

As more data goes into the cloud, we are also monitoring Snowflake’s growth. This company enables organizations to de-silo their data and compare/share with other data sources across the enterprise, serving as a good starting point for leveraging AI across their enterprise. At a recent tech conference, Snowflake management said: “the most common type of data going into Snowflake is CRM data.”

And as more customer relationship data moves to the cloud and into Snowflake for sharing between marketing, sales, and other teams, Sprinklr and Zeta Global may benefit from the need to unify and understand customer interactions.

As companies large and small establish their data, cloud, and AI strategies, what new innovations and companies will drive AI-exposed revenues in 2024?

5 Companies to Watch in 2024

  • Oracle (NYSE: ORCL)
  • Microsoft (NASDAQ: MSFT)
  • Snowflake (NYSE: SNOW)
  • Sprinklr (NYSE: CXM)
  • Zeta Global (NYSE: ZETA)

Oracle and Microsoft: How will this partnership help to drive cloud migration and AI in 2024?

Access to data will be a critical dimension to anything a customer wants to do with AI. Back in the fall of 2023, Oracle CTO Larry Ellison and Microsoft CEO Satya Nadella explained that their partnership will enable customers to co-locate the Oracle hardware and software within the Azure Data Center, which will be key for fine-tuning, pre-training, or meta-prompting a model for AI.

With a large portion of data still located on-premise, they believe this collaboration should encourage companies to move to the cloud by lowering latency and increasing security. Once the data is in the cloud, customers can begin to innovate with it. From the Azure portal, users can provision an Oracle database, then marry that to Open AI, and ultimately to the library of Microsoft technology.

Currently, analysts are expecting Microsoft’s June 2024 Azure revenue to be $72 billion and to double to $144 billion by June 2027, driven by growth of Infrastructure and Platform as a Service businesses within Azure. Similarly, Oracle’s May 2024 revenue from Cloud Services is projected to double from $19 billion to nearly $38 billion by May 2027. Given the partnership, could the pace of this growth show up faster for both Microsoft’s Azure and Oracle’s Cloud Services business lines?

Snowflake

Speaking at a tech conference in December, Snowflake CFO Mike Scarpelli echoed points around the cloud, data, and AI that were similar to Oracle and Microsoft. He explained that to reap the benefits of generative AI, companies are going to use it in the cloud, instead of on prem. Therefore, organizations will need to ensure their data is clean and in the cloud for their large language models to be useful.

As companies look to integrate AI into their organizations, the market for the Snowflake product looks poised to reaccelerate over the next year. In December, Scarpelli noted that Snowflake was seeing more stabilization and they were not hearing of any big optimizations. This stability should give them more visibility into their current customer base and enable the company to position for growth and product expansion. Scarpelli explained that the company is working on a number of new initiatives that it was not ready to disclose and which are not baked into its current outlook.

According to Visible Alpha consensus, revenues from product are estimated to grow from $2.6 billion in FY 2024 to $5.9 billion in FY 2027 and for the gross margin to expand from 73.2% to 74.9%, driven by improving consumption, customer growth, and product innovation.

According to Scarpelli, the most common type of data going into Snowflake is customer relationship management data. Therefore, we wanted to highlight two smaller-cap companies that are bringing AI innovations to their clients’ marketing teams: Sprinklr and Zeta Global.

Sprinklr

Through its specialized AI models, Sprinklr aims to provide a unified customer-experience platform for tracking all the places a customer may interact with a company’s brand, especially on social media outlets. With a market cap of $3.3 billion, Sprinklr may benefit from any rotation to smaller-cap stocks that are benefiting from the AI theme and its growth trends.

In its previous earnings release, Sprinklr missed expectations and the stock plummeted over 30%. However, recently the company has taken steps to try to improve operational visibility and address the challenges in its core business. According to Visible Alpha consensus, AI-exposed subscription revenue projections have decreased since last quarter for FY 2024, from $770 to $740 million, and for FY 2025, from $896 to $836 million. Given the cut to FY 2025 expectations, could Sprinklr rise above the challenges and beat consensus?

Zeta Global

With a market cap of $1.8 billion, Zeta Global is a small-cap company that looks well-positioned to benefit from its exposure to AI. Through the Zeta Marketing Platform (ZMP), CEO Steve Gerber’s vision is to leverage their proprietary AI and data tools to unify identity, intelligence, and omnichannel activation into a single platform. Having clean data in the cloud for data sharing within organizations may become an increasingly important driver, as customers look to centralize data for AI applications. Zeta Global’s partnership with data-sharing platform Snowflake may play a critical role in supporting the company’s growth.

According to Visible Alpha consensus, Zeta Global’s AI-exposed revenues are estimated to hit close to $1 billion by year-end 2025 from $726 million in FY 2023, as organizations adopt more advanced marketing technology.

Figure 2: Top 10 breakdown of AI-exposed revenue expectations

Figure 2: Top 10 breakdown of AI-exposed revenue expectations

Source: Visible Alpha consensus (January 16, 2023). TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI. Based on higher analyst counts, we are using the non-GAAP revenue number for Oracle.

Performance Summary

Currently, the Visible Alpha AI Monitor universe of 63 publicly-traded U.S. companies is 82% weighted to the 10 largest companies, with the remaining 18% dispersed among 53 companies.

On a market-cap weighted and AI-exposed-revenue weighted basis, the Visible Alpha AI Monitor continues to be driven by substantial stock price outperformance (vs. the S&P 500 index) of the largest companies. In addition, the smaller companies are continuing to underperform (vs. the S&P 500 index), especially on an equal-weighted basis. However, the AI-exposed companies, in general, have outperformed the Russell 2000 small-cap index.

On an equal-weighted basis, the AI Monitor generated significantly lower return when compared to the market-cap and AI-exposed-revenue weighted aggregations so far this year, driven by the drag of a lower return generated by the smallest names.

Top 10

Based on an analysis of the 10 largest players, 2025 revenue forecasts for AI-exposed-revenue segments increased by $43 billion from January 2023 to now, which is $3 billion more than in December 2023. However, nearly $72 billion of that is from Nvidia, which means that the rest of the Top 10 saw revenue estimates decline over $30 billion in aggregate. This was driven by lower expectations for AWS, Google Cloud, and Qualcomm QCT. However, though expectations came down for these companies, stock performance was strong for eight of the Top 10 companies, the exceptions being Qualcomm and Intel.

The Rest (smaller contributors)

The remaining list of 53 companies may serve as a good place for investors to discover new ideas by surfacing expanding new players. While smaller companies in aggregate have not performed as well as the Top 10, there have been some clear outperformers relative to others.

Among the smaller firms, revenue growth expectations are very mixed. Strong double-digit revenue growth is expected at some firms, while others are seeing estimates decline. These dynamics may help investors identify emerging trends in the space. In 2023, we have already seen that to be true with Palantir, C3 AI, Samsara, and MongoDB delivering very strong outperformance (vs. the S&P 500 index), while more than half of the smaller companies in the AI Monitor substantially underperformed the index. Rackspace, TTEC, Thoughtworks, and Liveperson fell by more than 50% in 2023. Year to date in 2024, larger names that are not in the Top 10 are showing positive performance, while the performance of small-cap and micro-cap companies are mixed.

Figure 3: AI Monitor detailed breakdown

Figure 3: AI Monitor detailed breakdown

Source: Visible Alpha consensus (January 16, 2023). Stock price data courtesy of FactSet. Current stock prices are as of the market close on January 12, 2023. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI. Based on higher analyst counts, we are using the non-GAAP revenue number for Oracle and Ansys.

Final Thoughts

Last year was clearly the Year of Nvidia, along with Palantir and C3 AI, having seen their exposure to AI translate into meaningful stock outperformance relative to the S&P 500 index. For many firms, however, it is not clear how AI-exposure will impact business models.

In 2024, we are watching the pace at which companies will be moving more of their data to the cloud and enabling innovation with AI. We are interested to see how the partnership between Oracle and Microsoft could help to drive more organizations to the cloud and set up their enterprises for integrating AI into their workflows. Through its data sharing and analytics capabilities, Snowflake is likely to play a critical role in the roll out of the AI ecosystem. Snowflake’s clients seem to be increasingly aiming to de-silo their data and organizations to understand how best to serve their customer base. As more customer relationship data moves to the cloud and into Snowflake for sharing and AI, it will be interesting to see if smaller firms, Sprinklr and Zeta Global, may benefit from these dynamics happening in different parts of the tech stack.

Which firms will drive the Visible Alpha AI Monitor in 2024? Will we see a rotation into less-appreciated firms where the growth may not yet be priced in?


AI Monitor Goals and Objectives

The objective of the Visible Alpha AI Monitor is to show the investment community which companies are likely to drive AI going forward. As the world embraces AI and its applications to enterprise workflows and our daily lives, big questions exist about how AI’s impact on company business models will unfold over the next 3-5 years. AI can potentially free people from tedious work to enable more focus on critical workflows that require human creativity and analysis.

A primary goal of the Visible Alpha AI Monitor is to show which U.S. companies and specific line items we are keeping an eye on as the embryonic AI theme emerges across company fundamentals and begins to scale broadly across the economy. We are monitoring how AI may be reflected in the numbers and which companies may be benefitting more or less. This universe attempts to be comprehensive and to show investors the dynamics of both the large and smaller U.S. players. Additionally, it aims to help investors identify new names that may be smaller and less covered, but potentially growing and emerging more quickly.

AI Monitor Methodology

Using Visible Alpha’s comprehensive database of detailed estimates pulled directly from sell-side analysts’ spreadsheet models, we have assembled an aggregation with an initial universe of 63 publicly-traded companies that are contributing to the infrastructure and broad scaling of AI capabilities. This monitor aims to provide a current and future snapshot as to where AI-related revenues are and are not growing across each of these 63 companies, and particularly the ten largest.

We have aggregated the revenues of specific business segments at firms that are driving the wider AI trend. For larger firms, we have attempted to pinpoint where in their revenue model AI is driving growth. For some smaller firms, we are simply incorporating 100% of revenues. The AI-exposed revenue lines we identify are intended to be used as a proxy for monitoring the growth of each company’s AI business. Given both lack of discrete company disclosures and how intertwined AI and conventional technologies and services can be, these lines should not be taken as exact quantifications of AI revenues, but are, we believe, the best systematic approximation available.

For Visible Alpha subscribers, details of these companies can all be found within the Visible Alpha Insights platform. Each company included in the monitor has coverage by at least four sell-side analysts. In addition, given the quickly evolving state of the AI space, these line items are subject to change and may shift significantly over time. We plan to refresh the data on an ongoing basis and provide regular updates.

The Visible Alpha AI Monitor aggregates publicly-traded U.S. technology companies, providing a comprehensive measure of the current state and projected growth of the core AI industry. This encompasses the AI-exposed revenues for companies that are building AI infrastructure and capabilities for both enterprises and consumers.

Investors may use the Visible Alpha AI Monitor to generate new ideas to capture growth emanating from the core AI industry, as well as to evaluate the potential AI exposure of technology stocks in their existing portfolios.

We have identified specific line items that capture potential growth of AI-related revenues that are available in the Visible Alpha Insights platform (see the goals, objectives, and methodology of the AI Monitor at the bottom of this page).

Key Takeaways

  • AI-exposed revenues are expected to grow by almost $250 billion, from $382 billion at the end of 2022 to $627 billion at the end of 2025, driven overwhelmingly by analysts’ upward revisions of over $150 billion to AI-exposed revenues for Nvidia.
  • Among all the companies in the AI Monitor, AI-exposed revenues in 2023 make up 24.5% of total revenues. Of the 24.5%, the majority (82%) is coming from the 10 largest firms by AI-exposed revenue.
  • More than 50% of the smaller-cap AI stocks underperformed year to date, while eight out of the 10 largest AI-exposed revenue generators have driven strong outperformance.

Figure 1: AI growth and performance overview

AI growth and performance overview

Source: Visible Alpha consensus (December 12, 2023). Stock price data courtesy of FactSet. Current stock prices are as of the market close on December 11, 2023. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI.

Current AI Landscape

At the moment, there is an arms race to convert data centers to accelerated computing to support AI and machine learning. As a result of the unexpectedly strong demand this year from cloud service providers, Nvidia (NASDAQ: NVDA) has seen the sum of its estimates over the next three years increase an astonishing $155 billion since January 2023. Meanwhile, the aggregate of the other nine largest AI-exposed revenue generators is expected to decline over $75 billion, driven by downward revisions to the revenue outlooks for AWS, Google Cloud, Azure IaaS/PaaS, and Qualcomm. Given the magnitude of Nvidia’s projected increases, is the growth in this part of the stack now priced in? As we move up the stack, what companies may begin to see their revenue explode, like Nvidia has, or possibly implode as AI takes hold?

Nvidia has been dominating the AI landscape, which has led it to drive the AI-exposed revenue outlook for the 10 largest AI-exposed revenue generators and the overall Visible Alpha AI Monitor. However, large and small companies have been investing in AI. Will these investments impact the broader industry and create opportunities for a wider array of firms to grow their AI revenues and emerge as new leaders?  Which companies will be the winners and which ones may see their business models and profits decline?

Figure 2: Top 10 breakdown of AI-exposed revenue expectations

Top 10 breakdown of AI exposed revenue expectations

Source: Visible Alpha consensus (December 12, 2023). TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI. Based on higher analyst counts, we are using the non-GAAP revenue number for Oracle and Ansys.

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Performance Summary

Currently, the Visible Alpha AI Monitor universe of 62 publicly-traded U.S. companies is 82% weighted to the 10 largest companies, with the remaining 18% dispersed among 52 companies.

On a market-cap weighted and AI-exposed-revenue weighted basis, the Visible Alpha AI Monitor was driven by substantial stock price outperformance (vs. the S&P 500 index) of the largest companies this year. In addition, the smaller companies were meaningful underperformers (vs. the S&P 500 index), especially on an AI-exposed-revenue weighting.

On an equal-weighted basis, the AI Monitor would have generated significantly lower return when compared to the market-cap and AI-exposed-revenue weighted aggregations this year, driven by the drag of a lower return generated by the 52 remaining names. Stock selection was an important dimension among the 52 names, as more than 50% of the companies underperformed the index.

Top 10

Based on an analysis of the 10 largest players from January of this year, 2025 revenue forecasts for AI-exposed revenue segments increased $40 billion in total. However, $70 billion of that is from Nvidia, which means that the rest of the Top 10 saw revenue estimates decline almost $30 billion in aggregate. This was driven by lower expectations for AWS, Google Cloud, and Qualcomm QCT. However, though expectations came down for these companies, stock performance was strong for eight of the Top 10 companies, the exceptions being Qualcomm and IBM, both of which appear to have lower AI-exposed revenue.

The Rest (smaller contributors)

The remaining list of 52 companies may serve as a good place for investors to discover new ideas by surfacing expanding new players. While smaller companies in aggregate have not performed as well as the Top 10, there have been some clear outperformers relative to others.

Among the smaller firms, revenue growth expectations are very mixed. Strong double-digit revenue growth is expected at some firms, while others are seeing estimates decline. These dynamics may help investors identify emerging trends in the space. We have already seen that to be true this year with Palantir, C3 AI, Samsara, and MongoDB delivering very strong outperformance (vs. the S&P 500 index), while more than half of the smaller companies in the AI Monitor substantially underperformed the index. Rackspace, TTEC, Thoughtworks, and Liveperson fell by more than 50%.

The role of Nvidia

The magnitude of growth baked into Nvidia, combined with this year’s over 200% stock performance, has been absolutely staggering. Looking further out to the end of 2027, Visible Alpha consensus for Nvidia revenue has exploded by nearly $100 billion from a modest $33 billion in January to now a whopping $129 billion currently projected in Data Center revenues alone.

Nvidia has driven the total AI Monitor and the Top 10 companies, as analysts began to anticipate enormous growth to come from transitioning data centers to accelerated computing to support AI. Nvidia made up 30% of the 85% aggregated market-cap weighted stock performance of the Visible Alpha AI Monitor. Looking at only the Top 10 market-cap weighted stock performance, Nvidia was close to 40% of the 65% aggregated return. Given the strength of both the revisions to future growth and the stock performance that followed, to what extent has the strength in Nvidia’s fundamentals already been priced in?

Figure 3: Nvidia’s Data Center revenue estimates and revisions

Nvidia Data Center revenue estimates and revisions

Source: Visible Alpha consensus (December 12, 2023)

Figure 4: AI Monitor detailed breakdown

AI Monitor detailed breakdown

Source: Visible Alpha consensus (December 12, 2023). TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Adobe, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI. Based on higher analyst counts, we are using the non-GAAP revenue number for Oracle and Ansys.

Download the Excel Worksheet

Final Thoughts

While this year has clearly been the Year of Nvidia, Palantir and C3 AI have seen their exposure to AI translate into meaningful stock outperformance relative to the S&P 500 index. However, for many firms it is not clear how AI-exposure will impact business models.

For example, Meta Platforms is investing in AI and has seen its stock rise 170% in 2023, but it is not clear how their AI strategy will show up in their numbers and at what pace. On a three-year forward basis, Meta’s AI-exposed revenue growth, as seems to be reflected in Reality Labs, is only expected to be 6%, but it’s obscured by the other businesses in this segment.

There are numerous such examples where the AI-exposed revenue growth projections and the stock performance do not appear correlated. As the AI story unfolds over the next few years, will the transparency of AI drivers improve and drive stock outperformance?

As 2023 comes to a close, will this year’s best performers, like Nvidia and Palantir, continue to drive the Visible Alpha AI Monitor in 2024 or will we see a rotation into less appreciated firms where the growth may not yet be priced in?

 

 


AI Monitor Goals and Objectives

The objective of the Visible Alpha AI Monitor is to show the investment community which companies are likely to drive AI going forward. As the world embraces AI and its applications to enterprise workflows and our daily lives, big questions exist about how AI’s impact on company business models will unfold over the next 3-5 years. AI can potentially free people from tedious work to enable more focus on critical workflows that require human creativity and analysis.

A primary goal of the Visible Alpha AI Monitor is to show which U.S. companies and specific line items we are keeping an eye on as the embryonic AI theme emerges across company fundamentals and begins to scale broadly across the economy. We are monitoring how AI may be reflected in the numbers and which companies may be benefitting more or less. This universe attempts to be comprehensive and to show investors the dynamics of both the large and smaller U.S. players. Additionally, it aims to help investors identify new names that may be smaller and less covered, but potentially growing and emerging more quickly.

AI Monitor Methodology

Using Visible Alpha’s comprehensive database of detailed estimates pulled directly from sell-side analysts’ spreadsheet models, we have assembled an aggregation with an initial universe of 62 publicly-traded companies that are contributing to the infrastructure and broad scaling of AI capabilities. This monitor aims to provide a current and future snapshot as to where AI-related revenues are and are not growing across each of these 62 companies, and particularly the ten largest.

We have aggregated the revenues of specific business segments at firms that are driving the wider AI trend. For larger firms, we have attempted to pinpoint where in their revenue model AI is driving growth. For some smaller firms, we are simply incorporating 100% of revenues. The AI-exposed revenue lines we identify are intended to be used as a proxy for monitoring the growth of each company’s AI business. Given both lack of discrete company disclosures and how intertwined AI and conventional technologies and services can be, these lines should not be taken as exact quantifications of AI revenues, but are, we believe, the best systematic approximation available.

For Visible Alpha subscribers, details of these companies can all be found within the Visible Alpha Insights platform. Each company included in the monitor has coverage by at least four sell-side analysts. In addition, given the quickly evolving state of the AI space, these line items are subject to change and may shift significantly over time. We plan to refresh the data on an ongoing basis and provide regular updates.