In the latest quarter, Microsoft’s cloud business surged while Alphabet, Google’s parent company, faced a slowdown. This suggests that Microsoft’s substantial investment in artificial intelligence is yielding dividends, signaling a shift in the cloud computing landscape.
Despite beating Wall Street’s expectations for overall profit and sales, Alphabet’s shares saw a 7% drop in after-hours trading. In contrast, Microsoft’s shares rose by 5%, underscoring the growing confidence in its cloud platform, Azure.
Bob O’Donnell, Chief Analyst at TECHnalysis Research, noted, “While a single quarter doesn’t a major trend make, this quarter’s cloud results … suggest that Azure is gaining share against its competition.”
Microsoft’s strategic integration of OpenAI’s technology into its products, from Bing to Microsoft 365 and Github, has positioned it as an AI frontrunner. This contrasts with Alphabet, which has been prioritizing AI startups as cloud customers.
Microsoft’s CFO, Amy Hood, attributed a 3 percentage point boost to its cloud business to higher-than-expected AI consumption. This underscores the impact of AI-driven technologies on cloud growth.
In the same period, Microsoft’s Intelligent Cloud unit, home to Azure, reported revenue of $24.3 billion, surpassing analysts’ estimates. Azure revenue saw an impressive 29% growth, surpassing expectations.
Meanwhile, Google’s cloud business posted a slower growth rate of 22.5%, generating $8.41 billion in revenue, its slowest expansion in at least 11 quarters. This fell short of the average Wall Street estimate.
Microsoft’s commitment to aggressive AI spending is evident in its capital expenditures, which rose to $11.2 billion for the fiscal first quarter. This represents a significant increase from the previous quarter and sets the stage for Microsoft to spend over $44 billion this fiscal year.
Global X analyst Tejas Dessai noted, “For Microsoft, these are absolutely phenomenal numbers, factoring in a cautious macro-economic outlook and a choppy IT spending environment. Quite surprising to see strong growth reacceleration in the Azure Cloud segment, which is clearly driven by AI-as-a-service related demand.”
Amazon is set to report quarterly results soon, with analysts anticipating a 12.4% rise in sales for AWS, Amazon’s cloud service. Amazon’s shares saw a 1.4% dip in after-hours trading following this news.
