In the latest quarter, Alphabet, Google’s parent company, experienced a 7% drop in its shares in after-hours trading despite beating Wall Street estimates for overall profit and sales. The decline suggests investors are looking for more significant gains in artificial intelligence (AI) and competitiveness against Microsoft’s Azure and Amazon.com’s AWS cloud services. Microsoft, a key competitor, saw its shares rise by 5%, signaling the success of its AI investment, particularly in startup OpenAI, maker of the popular ChatGPT chatbot.
Microsoft’s strategy of integrating OpenAI’s technology across various products, such as Bing, Microsoft 365, and Github, has positioned it as a frontrunner in the AI space. The company reported higher-than-expected AI consumption, contributing to a 3 percentage point boost to its cloud business. Microsoft’s revenue from its Intelligent Cloud unit, which includes Azure, reached $24.3 billion, surpassing analysts’ estimates. Azure’s revenue grew by 29%, outpacing expectations.
On the other hand, Google’s cloud business revenue rose 22.5% to $8.41 billion, marking its slowest growth in at least 11 quarters and falling short of the average Wall Street estimate of $8.62 billion. While both companies have prioritized AI, Microsoft’s success may be attributed to a more aggressive strategy in AI spending to meet increasing demand.
Microsoft’s commitment to spending on AI is evident in its capital expenditures, which reached $11.2 billion in the fiscal first quarter, up from $10.7 billion in the previous quarter. The company anticipates continued growth in this figure throughout the fiscal year, aiming to exceed $44 billion in spending. In contrast, Google’s capital expenditures grew by 10.7% to $8.06 billion, indicating a more conservative approach.
The results highlight the growing importance of AI in the cloud computing space, with Microsoft emerging as a leader, leveraging its AI investments to drive growth in its cloud business. The competition in the cloud market, particularly in the context of AI services, is intensifying, with companies like Amazon yet to announce their quarterly results.