Given Wall Street’s intense attention on cloud computing this week, Google’s growth exceeded that of its competitors, which is a crucial indication to investors that the internet giant is becoming more popular in the artificial intelligence space.
In the third quarter, Google’s cloud business—which includes both software subscriptions and infrastructure—grew 35% year over year to $11.35 billion, up from 29% in the previous quarter.
The market leader, Amazon Web Services, increased 19% to $27.45 billion, more than twice the size of Google Cloud but growing at a rate of approximately half as fast. Microsoft, in second position, reported a 33% increase in revenue from Azure and other cloud services compared to the previous year.
This week, results were released by five of the six trillion-dollar tech companies, with Nvidia, a manufacturer of AI chips, being the exception. Investors can see how the cloud battles are unfolding because Amazon, Alphabet, and Microsoft always release their reports at roughly the same time.
Analysts at Argus Research, who advise purchasing the stock, noted in a research on October 31 that “Although Alphabet has frequently been criticized as a Johnny-one-note for its dependence on digital advertising, the rapid growth of Google Cloud has begun to diversify the company’s revenue.”
Cloud computing used to be a financial drain for Google, but that is no longer the case.
After making a profit for the first time last year, Google recorded a cloud operating margin of 17% in the third quarter. Melissa Otto, head of Visible Alpha’s technology, media, and telecoms sector analysis, told CNBC this week that it was “a real beat to expectations there.” She expressed uncertainty about the company’s capacity to maintain that level of profitability.
Amazon, which has traditionally relied on AWS for the majority of its overall profits, has experienced the opposite situation.
Analysts at Bernstein called AWS’ operating margin of 38% for the third quarter a “whopping” figure. Executives have stopped offering less well-liked AWS services and have been cautious when hiring. Additionally, Amazon increased the operating margin by 200 basis points, or 2 percentage points, at the start of 2024 by extending the useful life of its servers from five to six years.
This week, Microsoft began providing investors with more precise information about its Azure public cloud. Sales of security and mobility services as well as Power BI data analytics tools were included in the company’s previous reports of Azure revenue growth. AI services are giving Microsoft, the primary investor in OpenAI, the company that created ChatGPT, a significant boost.
Amy Hood, Microsoft’s finance head, stated on the company’s earnings call that “demand continues to be higher than our available capacity.”
The growth of Azure is expected to slow down in the current quarter, but it should accelerate in the first half of 2025 “as our capital investments create an increase in available AI capacity to serve more of the growing demand,” according to Hood.
Amazon is experiencing a comparable situation.
During his company’s earnings call, Andy Jassy, the CEO of Amazon, stated, “I think pretty much everyone today has less capacity than they have demand for, and it’s really chips that are the area where companies could use more supply.”
Amazon uses some of its own CPUs in addition to Nvidia’s graphics processing units (GPUs) to help lighten the load. According to Jassy, customers are expressing interest in Trainium 2, the business’s second-generation model training chip.
Several times, he said, “We’ve returned to our manufacturing partners to produce much more than we’d originally planned.”
Google’s own tensor processing units for AI are currently in their sixth generation. Analysts were informed by CEO Sundar Pichai that he has been interacting with the TPU team.
“The forward-looking roadmap excites me greatly, but it also enables us to plan ahead and truly drive an optimized architecture for it,” he stated.
A year ago, Microsoft unveiled Maia, its own AI chip for the cloud. According to a spokeswoman, the business has begun using Maia chips to power its own services but has not yet made them available for rent to clients.
In a report this week, analysts at DA Davidson stated that they do not believe Microsoft can defeat Amazon and Google in this conflict. Microsoft has a neutral rating.
In December, Oracle, which often comes in at number four among US cloud infrastructure providers, is anticipated to release its quarterly results. According to Oracle’s most recent report, cloud infrastructure revenue increased 42% in the previous quarter to $2.2 billion, a 45% increase.
Chairman Larry Ellison stated during the most recent earnings calls that Oracle’s recent partnership with its three larger cloud competitors to make its databases accessible on their platforms “will turbocharge the growth of our database business for years to come.”