SAN FRANCISCO – Google parent Alphabet and computing colossus Microsoft on Tuesday reported that quarterly profits climbed on demand for cloud computing enhanced with artificial intelligence (AI).
Microsoft saw its shares rise more than 3 per cent to US$341.11 on earnings that underscored the momentum of its cloud business. The stock surged by 4.6 per cent in after-hours trading.
Alphabet share prices, however, slipped more than 5 per cent to US$129.67 in after-market trade on Tuesday despite beating overall earnings expectations as investors had evidently hoped Google Cloud would be doing better.
“Google Cloud missed consensus revenue expectations on slowing growth... consistent with the view that newer (generative AI) workloads will take time to move the needle,” Baird Equity Research analyst Colin Sebastian said in a note to investors.
Alphabet reported a quarterly profit of US$19.7 billion (S$27 billion), powered by money taken in from ads, YouTube and cloud services.
Alphabet logged US$76.7 billion in revenue versus US$69 billion in the same period in 2022.
“We see AI as a foundational platform shift and are excited about the opportunities across our business,” Alphabet chief executive officer Sundar Pichai said during an earnings call.
“Through it all, we are making sure the product works well and we are generating value.”
Consumers and investors have been keenly watching how companies take advantage of AI. Google, along with Microsoft and OpenAI, is considered a leader in the technology.
But Alphabet has largely been seen as playing catch-up with Microsoft, with questions over whether the mighty Google search engine will withstand developments in AI.
Microsoft was quick to beef up its Bing search engine with AI powers, but Google’s search has yet to see a real threat to its dominance, and continues to hold about 90 per cent of the market worldwide.
Google, like most big technology companies, has seen its share price rise steeply in 2023 as investors expect AI to generate new revenue and open new markets.
“It is a testament to the nature of Google’s market dominance in search and ads that it can beat (earnings) estimates and have its stock sag immediately afterwards,” said Insider Intelligence analyst Max Willens.
“Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition.”
While Google may gain traction making money from AI in the long run, its cloud unit for now is not enough to sate investors, Mr Willens added.
Revenue in Alphabet’s cloud division, which infuses AI into its services, was US$8.4 billion in the quarter, compared with US$6.7 billion in the same period in 2022.
Microsoft riding the cloud
Microsoft said on Tuesday that its profits rose in the latest quarter, boosted by its strength in the closely watched cloud services segment. The company exceeded expectations to report a net income of US$22.3 billion for the July-to-September period, up 27 per cent from a year ago.
All eyes have been on Microsoft’s AI and cloud computing performance, and a key aspect is the Azure cloud service, which competes with Amazon Web Services and Google Cloud.
“We’re making the age of AI real for people and businesses everywhere,” Microsoft chief executive Satya Nadella said on an earnings call.
“We are rapidly infusing AI across every layer of the tech stack and for every role in the business process to drive productivity gains.”
In the latest quarter, revenue growth for Azure and other cloud services came in at 29 per cent from a year ago, a slightly faster pace than in the three months prior.
Overall, the company reported US$56.5 billion in sales for the quarter, which was also higher than anticipated.
The latest earnings report comes shortly after Microsoft closed its blockbuster acquisition of Activision Blizzard, whose video games include Call Of Duty, sealing one of the biggest tech tie-ups in history. AFP
