Alphabet CEO Sundar Pichai speaks at the Munich Security Conference held at Hotel Bayerischer Hof in Munich, Germany on February 16, 2024.
Tobias Hase | Picture Alliance | Getty Images
Wall Street is focused on cloud computing this week. google Outperforming its competitors in growth is a key sign for investors that the internet company is gaining momentum in the artificial intelligence space.
Google The cloud business, which includes infrastructure and software subscriptions, grew 35% year over year to $11.35 billion in the third quarter, accelerating from 29% in the prior quarter.
Amazon Web Services, which continues to be the market leader, grew 19% to $27.45 billion, more than twice the size of Google Cloud, but means it’s growing about half as fast. No. 2 Microsoft said its revenue from Azure and other cloud services rose 33% year over year.
Five of the $6 trillion tech companies will report earnings this week, including AI chip makers. Nvidia as an outlier. Amazon, Alphabet, and Microsoft always release reports around the same time, giving investors a snapshot of how the cloud wars are unfolding.
“Alphabet has often been criticized as a Johnny One-Note due to its reliance on digital advertising, but the company’s revenue is starting to diversify with the rapid growth of Google Cloud,” said an analyst at Argus Research who recommends buying the stock. List writes in the article. Report for October 31st.
For a long time, the cloud was a source of revenue for Google, but not anymore.
Google reported a cloud operating margin of 17% in the third quarter after turning profitable for the first time last year. “This was a huge disappointment,” Melissa Otto, director of research for technology, media and telecommunications at Visible Alpha, told CNBC this week. He said he was unsure whether the company could maintain that level of profitability.
The opposite story is true for Amazon, which has long relied on AWS for a large portion of its gross profits.
AWS’ third-quarter operating margin was 38%, which Bernstein analysts called “staggering.” Management has been cautious with hiring and has discontinued less popular AWS services. Additionally, in early 2024, Amazon extended the useful life of its servers from five to six years. This increased operating margin by 200 basis points (2 percentage points).
microsoft This week, it began providing investors with more precise information about its Azure public cloud. When the company reported Azure revenue increases in the past, those numbers included sales of mobility and security services and Power BI data analytics software. Microsoft, the creator of ChatGPT and the lead investor in OpenAI, has benefited greatly from AI services.
“Demand continues to exceed our available capacity,” Amy Hood, Microsoft’s chief financial officer, said on the company’s earnings call.
Azure growth will slow slightly this quarter, but should pick up in the first half of 2025 “as our capital investments increase available AI capacity and enable us to better meet growing demand.” Mr. Hood said.
Amazon is witnessing a similar move.
“I think most people today have less production capacity than demand. It’s mainly chips where companies could use more supply,” Amazon CEO Andy Jassy said. He spoke at the company’s financial results conference.
To ease the burden, Amazon relies to some extent on its own processors in addition to Nvidia’s graphics processing units (GPUs). Jassy said customers have expressed interest in the company’s second-generation chip for training models, Trainium 2.
“We went back and forth to our manufacturing partners to produce much more than we originally planned,” he said.
Google is currently developing the 6th generation of its own custom tensor processing unit for AI. CEO Sundar Pichai told analysts that he has been spending time with the TPU team.
“I couldn’t be more excited about our forward-looking roadmap, which allows us to plan for the future and really drive an architecture that is optimized for it.” he said.
A year ago, Microsoft introduced its own AI chip, Maia, to the cloud. The company has begun using Maia chips to power its services, but has not yet made them available for rental by customers, a spokesperson said.
Analysts at DA Davidson said in a note this week that they don’t think it’s a winnable battle for Microsoft against Amazon and Google. They have a neutral rating on Microsoft.
oracleis roughly ranked No. 4 among cloud infrastructure companies in the U.S. and is scheduled to report quarterly results in December. In the previous report, oracle The company announced that its cloud infrastructure revenue increased 45% to $2.2 billion, up from 42% in the previous quarter.
Oracle recently partnered with three cloud rivals to make their databases available to their services, a move that Chairman Larry Ellison said in a previous earnings call that “will not affect us for years to come.” “This will accelerate the growth of our database business over the long term.”
clock: Otto: The scale of Alphabet’s cloud business and spending on AI infrastructure will matter
