SAN FRANCISCO – Microsoft and Google owner Alphabet sent a clear message to investors on April 25: Our spending on artificial intelligence (AI) and cloud computing is paying off.
The companies trounced Wall Street estimates with their latest quarterly results, lifted by a surge in cloud revenue – fueled in part by booming use of AI services. That sent shares of the companies up in late trading, with Alphabet soaring as much as 17 per cent and Microsoft gaining 6.3 per cent.
The tech titans have been locked in a fierce battle for dominance in the field of AI, with Microsoft joining forces with start-up OpenAI to challenge Google’s two-decade stranglehold on internet search. But their latest quarterly results showed there’s ample room for both companies to grow.
Silicon Valley has hailed 2024 as the year that companies will begin to deploy generative AI – technology that can create text, images and videos from simple prompts. In back-to-back earnings calls, Alphabet and Microsoft executives said the programs are driving more business for their cloud computing units.
Corporate customers are more open to making long-term investments in their cloud infrastructure, said Tejas Dessai, research analyst at Global X ETFs. That’s helped make the sometimes-volatile industry more reliable.
“It’s quite clear from these earnings from Microsoft and Google that cloud infrastructure demand is starting to normalize,” Mr Dessai said. “Foundational cloud infrastructure is showing healthy growth.”
Rising cloud computing demand comes as a welcome turn for Google, which has long trailed Amazon.com and Microsoft in the market. After breaking even for the first time last year, Google’s cloud operation posted first-quarter profit of US$900 million (S$1.2 billion) – well ahead of analysts’ projections of US$672.4 million. The unit is viewed as one of Google’s best bets for growth as its core search advertising business matures.
“For years, Google Cloud was usually a weak spot during Alphabet’s earnings calls,” said Lee Sustar, a principal analyst with Forrester Research. “These latest results show that Google Cloud’s AI offerings not only got enterprise customers to take another look, but spend some serious money.”
Google’s success with corporate clients follows some embarrassing setbacks in the consumer market. In February, its flagship AI model Gemini was roundly criticized after it spit out historically inaccurate images, prompting the company to stop generating depictions of people.
The enterprise side of the market has been a very different story, according to Google Cloud chief executive officer Thomas Kurian. The professional version of Gemini comes with various controls to help marketers ensure that the content is staying consistent with their brands. The service can be used to produce ads, ward off cyber threats, and even create videos and podcasts.
“We are really excited about the benefit from AI for our cloud customers,” chief financial officer Ruth Porat said on April 25. “We saw an increasing contribution from our AI solutions.”
For Microsoft, generative AI is letting the company wring more spending from its core enterprise clients. CEO Officer Satya Nadella has been infusing Microsoft’s entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarsze documents and generate content. They’re also signing up for Azure cloud subscriptions featuring OpenAI products.
Microsoft said sales of its Azure cloud computing platform climbed 31 per cent in the quarter, beating analysts’ expectations. About 7 per cent of that increase was attributable to AI, compared with 6 per cent in the previous quarter, and Microsoft is pleased with customer adoption so far, CFO Amy Hood said in an interview.
“You’re seeing healthy growth really across Azure, in the non-AI and AI services, which is important,” Ms Hood said. “While of course it’s still early in the long-term AI monetisation opportunity, we feel good about where we are.”
Microsoft’s GitHub coding platform is also gaining traction, recording 1.8 million customers during the period, up from 1.3 million last quarter. The AI-coding assistant is powered by OpenAI’s large language model and helps streamline developers’ work by predicting lines of code, answering questions and converting code from one programming language to another.
The company is also seeing promising initial uptake for an AI assistant meant to work with its Office software. The new tools cost companies an extra US$30 a month on top of existing subscriptions. Mr Nadella told analysts almost 60 per cent of Fortune 500 customers are using the Copilot. BLOOMBERG
