Computer giant Alphabet, the parent company of Google, On Tuesday, Microsoft revealed that its quarterly profits increased due to the increased demand for artificial intelligence-enhanced cloud computing.
Microsoft’s stock increased by more than 3% to $341.11 following earnings that demonstrated the growth of its cloud computing division.
Despite exceeding total profits estimates, Alphabet’s share prices fell more than 5% to $129.67 in after-market trading on Tuesday. It was clear that investors had been expecting Google Cloud to do better.
“Google Cloud missed consensus revenue expectations on slowing growth, and we believe consistent with the view that newer (generative artificial intelligence) workloads will take time to move the needle,” Baird Equity Research analyst Colin Sebastian said in a note to investors.
Google’s $19.7 billion quarterly profit was fueled by revenue from YouTube, adverts, and cloud services.
Compared to $69 billion during the same period last year, Alphabet recorded sales of $76.7 billion.
“We see AI as a foundational platform shift and are excited about the opportunities across our business,” Alphabet chief executive Sundar Pichai said during an earnings call.
“Through it all we are making sure the product works well and we are generating value.”
Consumers and investors have been keenly watching how companies take advantage of artificial intelligence, and Google along with Microsoft and OpenAI are considered leaders in the technology.
However, Alphabet is often perceived as catching up to Microsoft, raising concerns about whether the powerful Google search engine will be able to keep up with advances in artificial intelligence.
Microsoft moved quickly to add artificial intelligence (AI) capabilities to its Bing search engine, but Google’s search engine continues to command nearly 90% of the global market and has not seen a genuine challenge to its hegemony.
Like the majority of large tech businesses, Google saw a sharp increase in share price in 2023 as investors anticipated AI will open up new industries and bring in new revenue.
“It is a testament to the nature of Google’s market dominance in search and ads that it can beat (earnings) estimates and have its stock sag immediately afterwards,” said Insider Intelligence analyst Max Willens.
“Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition.”
While Google may gain traction making money from AI in the long run, its Cloud unit for now is not enough to sate investors, Willens added.
Revenue in Alphabet’s cloud division, which infuses AI into its services, was $8.4 billion in the quarter, compared to $6.7 billion in the same period a year earlier.
