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Google Cloud underperforms while Microsoft beats expectations and continues to ride the AI wave.
Big Tech earnings are never not impressive, considering the sheer amount of money we’re dealing with.
Both Microsoft and Alphabet have posted their latest earnings reports with percentage increases in revenue in the lower double-digits and net incomes well above that. But while Microsoft has exceeded investor expectations in the increasingly important and competitive cloud space, Google disappointed investors with relatively weak cloud-computing sales.
This is even though Google parent company Alphabet reported its strongest business growth in more than a year with third quarter revenue up 11pc to $77bn and net income up 42pc to nearly $20bn.
Google cloud services, however, which is the backbone of its advancements in AI, saw sales growth slow down to 22pc on the third quarter, missing analyst expectations and causing a 6pc drop in share value in after-hours trading. The cloud business brought in $8.4bn in revenue.
“We’ll do everything that is needed to make sure we have the leading AI models and infrastructure in the world, bar none, and will continue driving efficiencies from there,” Alphabet CEO Sundar Pichai said during a call with analysts.
The relatively slow growth in its cloud business is not good news for Google and its investors as Alphabet plays catch-up with competitors Amazon Web Services (AWS) and Microsoft Azure and powers its growing investment in generative AI technologies.
Meanwhile, demand for Microsoft cloud computing services shows no sign of slowing down, as the software giant reported a 13pc growth in its overall revenue year-on-year to $56.5bn, beating analyst expectations and coming in stronger than last year’s growth rate.
Growth was particularly impressive in Azure, the company’s cloud business that competes with AWS and Google Cloud, where Microsoft reported a 29pc increase in sales, beating both the growth rate from the previous quarter and analyst expectations.
Microsoft has been riding an AI wave in recent earnings after making significant investments in the technology, not least evidenced by its multibillion-dollar investment in ChatGPT-maker OpenAI.
In February, the company revealed a new Bing search engine and Edge browser with AI capabilities in the hope of challenging Google’s market dominance. By March, Bing had reached 100m daily users, with users flocking towards the new AI-powered search feature.
In a statement during the April earnings call, Microsoft CEO Satya Nadella spoke about advanced AI models and “a new era of computing”, suggesting the company’s investment in ChatGPT and generative AI as the reason for the strong results.
In yesterday’s earnings call, Nadella said Microsoft’s strong start to the fiscal year was “driven by the continued strength in Microsoft Cloud”.
“We are rapidly infusing AI across every layer of the tech stack, and for every role and business process, to drive productivity gains for our customers,” he said.
Earlier this week, Microsoft announced the single largest investment in its 40-year history in Australia, with a A$5bn investment to expand its cloud computing and AI infrastructure in the country.
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