Microsoft’s AI Investment Propels Cloud Business, Leaving Alphabet in the Dust

UNITED STATES: In the September quarter, Alphabet, the parent company of Google, witnessed a setback in its cloud business while long-time rival Microsoft soared, showcasing the success of the Windows giant’s investment in artificial intelligence.

Alphabet’s shares plummeted by 7% in after-hours trading on Tuesday, in stark contrast to Microsoft’s impressive 5% rise.

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Despite exceeding Wall Street estimates for overall profit and sales, Alphabet’s dip in shares reveals investor eagerness for gains in artificial intelligence and fierce competition against Microsoft’s Azure and Amazon.com’s AWS cloud services.

Microsoft’s strategic partnership with startup OpenAI, the creator of the popular generative AI chatbot ChatGPT, has positioned it as a frontrunner in the AI race. OpenAI’s technology has been seamlessly integrated across Microsoft’s product suite, from Bing to Microsoft 365 and Github.

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While Alphabet has also embedded AI in numerous products, including its flagship Pixel phones, its recent venture into generative AI for its search engine faces stiff competition from ChatGPT.

During a conference call with analysts, Microsoft’s Chief Financial Officer, Amy Hood, credited higher-than-expected AI consumption for a significant 3% boost in its cloud business.

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The divergent strategies of the two tech giants are evident in their results. Alphabet has focused on acquiring AI startups for its cloud division, while Microsoft leverages existing relationships to secure larger customers.

In terms of revenue, Microsoft’s Intelligent Cloud unit, home to Azure, reached $24.3 billion, surpassing analysts’ estimates. Azure’s revenue surged by 29%, outstripping market projections. RBC Capital Markets predicts that Microsoft will generate over $3 billion from generative AI offerings this fiscal year.

On the flip side, Google’s cloud business reported a 22.5% revenue increase, reaching $8.41 billion, the slowest growth in over 11 quarters and falling short of the Wall Street estimate of $8.62 billion.

As Microsoft pledges to aggressively invest in AI to meet demand, their capital expenditures have risen significantly. The company’s capex for the fiscal first quarter reached $11.2 billion, setting the stage for an annual expenditure exceeding $44 billion.

Global X analyst Tejas Dessai described Microsoft’s growth as “phenomenal” against a backdrop of economic uncertainty, highlighting the pivotal role of AI-as-a-service in Azure’s reinvigorated success.

Also Read: Microsoft’s Executive Compensation Takes a Hit as Company Misses Financial Targets


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