Alphabet CEO Sundar Pichai speaks at the Munich Security Conference at the Bavaria Hof Hotel on February 16, 2024 in Munich, Germany.
Tobias Haas | Image Alliance | Getty Images
With Wall Street’s laser focus on cloud computing this week, Google Outpacing rivals in growth is a big sign to investors that the internet company is gaining traction in the artificial intelligence space.
Google’s Cloud business (including infrastructure and software subscriptions) grew 35% annually in the third quarter to $11.35 billion, accelerating from 29% in the previous quarter.
Amazon Web Services remains the market leader, growing 19% to $27.45 billion, meaning it is more than twice the size of Google Cloud but expanding at about half the rate. Microsoft, which ranked second, said revenue from Azure and other cloud services increased 33% year-on-year.
Five of six trillion-dollar technology companies report results this week, including artificial intelligence chip maker NVIDIA as an outlier. Amazon, Alphabet and Microsoft always release reports around the same time to let investors know how the cloud wars are progressing.
Analysts at Argus Research recommend buying the stock, writing in a note: “While Alphabet is often criticized as a dead letter due to its reliance on digital advertising, Google Cloud’s rapid growth has begun to diversify the company’s revenue.
Cloud computing has long been a source of funding for Google, but that’s no longer the case.
Following its first profit last year, Google’s cloud operating profit margin was 17% in the third quarter. Melissa Otto, head of research for Visible Alpha’s technology, media and telecommunications sector, told CNBC this week that it “really exceeded expectations.” She said she wasn’t sure the company could maintain that level of profitability.
The opposite is true for Amazon, which has long relied on AWS for the majority of its profits.
AWS’ operating margin in the third quarter was 38%, which Bernstein analysts called an “amazing” number. Executives have been cautious about hiring and have discontinued less popular AWS services. Additionally, in early 2024, Amazon extended the life of its servers from five to six years, a change that improved operating margins by 200 basis points, or 2 percentage points.
Microsoft This week it began to provide investors with a more accurate interpretation of its Azure public cloud. When the company has reported Azure revenue growth in the past, the number has included sales of mobile and security services as well as Power BI data analysis software. Microsoft is a major investor in ChatGPT creator OpenAI, which is getting a huge boost from artificial intelligence services.
“Demand continues to be higher than our available capacity,” Microsoft Chief Financial Officer Amy Hood said on the company’s earnings call.
Hood said that while Azure’s growth will slow this quarter, it should pick up in the first half of 2025 “as our capital investments increase available AI capacity to meet more growing demand.” “
Amazon is seeing a similar dynamic.
“I think almost everyone’s capacity right now is less than what they need, and the area where the company could use more supply is really primarily in chips,” Amazon Chief Executive Andy Jassy said on the company’s earnings call.
To lighten the load, Amazon is relying partly on its own processors in addition to Nvidia’s graphics processing units (GPUs). Jassy said customers have shown interest in the company’s second-generation training model chip, Trainium 2.
“We reached out to our manufacturing partners multiple times to produce much more than we originally planned,” he said.
Google is currently developing a sixth-generation customized tensor processing unit for artificial intelligence. Chief Executive Sundar Pichai told analysts he has been spending time with the TPU team.
“I’m very excited about the forward-looking roadmap, but it all allows us to plan ahead for the future and really drive optimized architecture for it,” he said.
A year ago, Microsoft launched its own cloud artificial intelligence chip Maia. A spokesman said the company has begun using Maia chips to power its own services but has not yet made them available for leasing to customers.
Analysts at DA Davidson said in a report this week that they don’t think Microsoft can win against Amazon and Google. They rate Microsoft neutral.
OracleIt is generally ranked fourth among U.S. cloud infrastructure companies and is expected to report quarterly results in December. In its last report, Oracle Cloud infrastructure revenue grew 45% to $2.2 billion, up from 42% growth in the previous quarter.
Oracle recently partnered with three of its major cloud rivals to offer its databases on their services, a move that Chairman Larry Ellison said on the last earnings call “will drive growth in our database business for years to come.” ”.
watch: Otto: The scale of Alphabet’s cloud business and spending on artificial intelligence infrastructure will be critical