Despite Microsoft’s AI Bets, Alphabet Has Yet To Find a Silver Lining

(CTN News) – In the September quarter, Alphabet’s cloud business suffered as Microsoft’s soared, demonstrating an early return on Microsoft’s artificial intelligence investment.

After hours trading on Tuesday, Alphabet’s shares fell 7%. Microsoft’s stock rose 5%.

Although Alphabet beat Wall Street’s expectations for overall profit and sales, investors wanted it to deliver advances in artificial intelligence and demonstrate it would remain competitive against Azure and Amazon.com’s (AMZN.O) AWS cloud business.

This quarter’s cloud results … suggest that Azure is gaining share against its competitors, according to TECHnanalysis Research’s Bob O’Donnell.

It could also be that strong messaging on Copilots and GenAI technology is getting companies to take them more seriously.”

With a substantial investment in startup OpenAI, maker of the generative AI chatbot ChatGPT, Microsoft has emerged as an AI frontrunner.

From its search engine Bing to its workplace productivity suite 365 and software coding platform Github, Microsoft has incorporated OpenAI’s technology across its product catalog.

In addition to its flagship Pixel phones, Alphabet has deployed AI in dozens of its products, including its search engine. The company launched Bard, a generative AI chatbot that competes with ChatGPT, earlier this year.

During a conference call with analysts, Microsoft’s chief financial officer Amy Hood said higher-than-expected AI consumption boosted its cloud business by 3 percentage points.

For its cloud division, Alphabet prioritizes snagging AI startups as customers, while relies on its existing relationships. Krishna Chintalapalli, portfolio manager at Parnassus Investments, which invests in Alphabet and Microsoft, noted that the results reflected that strategy.

DAZZLES IN AZURE Microsoft

The Intelligent Cloud unit at Microsoft, which houses the Azure cloud computing platform, generated $24.3 billion in revenue, compared to analysts’ estimates of $23.49 billion, LSEG data showed. Compared with Visible Alpha’s 26.2% growth estimate, Azure revenue rose by 29%.

Microsoft is expected to generate over $3 billion in revenue from generative AI offerings this fiscal year, according to RBC Capital Markets.

Cloud revenue grew 22.5% to $8.41 billion in the quarter ended Sept 30, its slowest growth in at least 11 quarters. A Wall Street average of $8.62 billion was expected.

Microsoft promises to invest aggressively in artificial intelligence in order to meet customer demand. In the first quarter of fiscal 2018, the company reported capital expenditures of $11.2 billion, an increase from $10.7 billion in the previous quarter.

According to Microsoft executives, that figure will likely grow each quarter this fiscal year, putting the company on track to spend more than $44 billion.

Capex at Google increased 10.7% to $8.06 billion from a year earlier in July-September.

“Considering a cautious macro-economic outlook and a choppy IT spending environment, these numbers are phenomenal for Microsoft.” It is quite surprising to see strong growth reacceleration in Azure Cloud, which is clearly driven by AI-as-a-service demand,” said Global X analyst Tejas Dessai.

AWS is expected to post a 12.4% revenue increase in its quarterly report on Thursday. Tuesday’s post-market trading saw Amazon shares fall 1.4%.

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