Microsoft’s AI gambit shines but Google fumbles with cloud business
Rival tech mega-caps Microsoft and Alphabet, the parent company of Google, outperformed market expectations in their freshest quarterly results. But as Microsoft’s big AI bet really starts to take off, Google’s cloud business has flumped.
Microsoft reported first-quarterly revenue of $56.5bn (£46.4bn), a 13 per cent increase compared to the same period the previous year, largely thanks to strong growth in its cloud computing division. It surpassed analyst predictions of $54.5bn (£44.8bn).
Alphabet’s revenue for its third quarter reached $76.7bn (£63bn), marking an 11 per cent year-on-year rise and exceeding the estimated $76bn (£62.5bn).
But the Google owner faced disappointment as its cloud computing unit fell short of expectations at just $8.4bn (£6.9bn), generating $20m (£16.4m) less than anticipated. It reported a quarterly growth rate of 22.5 per cent, a decline from the previous period’s 28 per cent.
Alphabet chief executive Sundar Pichai said Google is preparing for the launch of Gemini, its next big AI model, which it hopes will claw back some of Microsoft’s market share in this department.
Microsoft’s cloud unit, which includes the Azure computing platform, posting revenue of $24.3bn (£20bn), exceeded expectations — although the company said growth could eventually slip.
In extended trading, Microsoft’s stock surged by five per cent while Alphabet’s stock went the other direction, dipping nearly five per cent on the poor cloud performance.
Microsoft is building AI into its own products, such as the $30-a-month “Copilot” assistant for its Microsoft 365 service. It recently ploughed ahead in the AI race with a $10bn (£8.2bn) investment into startup OpenAI, the creators of Chatgpt.
“Microsoft’s come out the gate swinging this quarter,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“The potential for Microsoft to do exceptionally well from generative AI remains, but the exact moment in time that this tech will be adopted at large will depend on when corporate spending picks up the pace, and confidence needs to improve before that can happen.
“A marked slowdown in personal computing continues to bite. Fewer people are splashing the cash on hardware and the software that goes with it, which is a classic symptom of the economic wheel losing steam and Microsoft has cloud to pick up the slack,” she said.