Tech giants faced investor disappointment as the costs of developing advanced generative AI-powered products overshadowed the positive customer response. Alphabet's shares fell by 6%, while Microsoft's shares dropped by 1%, resulting in a decline in the stocks of other major tech companies like Apple, Meta, and Amazon. Despite both Microsoft and Alphabet reporting significant growth in cloud revenue in the December quarter and surpassing Wall Street expectations, the costs associated with research, data centers, and servers surged. This raised concerns about the substantial investments required to compete in the AI market and dampened investor expectations. The high valuations of these companies amplified the impact of any slight disappointment, causing Microsoft's shares to dip slightly following guidance of a potential slowdown in revenue growth for its cloud division.

Russ Mould, investment director at AJ Bell, highlighted the demand for more significant contributions from AI in the investment community. Alphabet's shares, which gained 58% in 2023, were valued at 22. 26 times expected earnings, while Microsoft, Meta, Amazon, and Apple had forward price-to-earnings ratios of 33. 09, 22. 46, 42. 60, and 27. 73, respectively. A note from Bernstein analysts identified the challenge of achieving higher valuation multiples when larger cloud players are experiencing faster growth from larger revenue streams. The resulting stock drops reduced the market value of Google by approximately $66 billion and Microsoft by $38 billion. Alphabet's capital expenditure for the reported quarter increased by 45% to $11 billion, and Chief Financial Officer Ruth Porat anticipated even larger spending in the upcoming year compared to 2023.