Google Cloud falls short of expectation as Microsoft soars in latest earnings report

Microsoft and Alphabet, Google’s parent company, were among a host of big tech firms that released their quarterly earnings reports last week, and one evident thing is the role of AI in shaping their revenue.

Microsoft’s revenue grew by 3.6% to reach $56.5 billion, but its cloud segment which accounts for almost half of its revenue grew by 19% year-on-year to reach $24.3 billion. Alphabet’s total revenue, on the other hand, grew by 11% to reach $76.69 billion. Its cloud revenue was $8.4 billion representing a 22% increase from the third quarter of 2022.

Cloud computing is expected to grow in demand as the uptake of AI continues. But while both companies saw an increase in revenue, Google fell short of its expected $8.6 billion cloud revenue.

Consequently, Alphabet’s share price went down by 9% while Microsoft’s shares soared by 4%. The stock swings saw Microsoft’s market cap soar by about $73 billion, while Google’s fell roughly $170 billion.

It won’t come as a surprise that Microsoft is seeing better success seeing as it was among the first big tech companies to integrate AI into its cloud computing services and across its entire stack.

Since OpenAI broke out with ChatGPT, Microsoft has invested an estimated $13 billion in the AI company. One of the resulting products from the partnership is Azure OpenAI, a service that lets software developers integrate OpenAI models into their applications. The service currently has 18,000 customers up from 11,000 in July.

Github Copilot another service that helps programmers leverage AI when writing code currently has 1 million paid subscribers. Microsoft CEO Satya Nadella also confirmed that the company has AI services in more regions than any other cloud provider.

“Over 50% of the Microsoft installed [customer] base will ultimately use the AI functionality for the enterprise/commercial landscape which represents a major monetization opportunity and we are now seeing this play out as we head into year-end,” wrote Dan Ives, the managing director at investment firm Wedbush.

That said it’s still a surprise that Alphabet’s market price plummeted after the reports especially considering that this time last year, Google’s cloud segment reported a $1.7 billion loss.