Never mind the Champions League, for investors the big match came overnight with Microsoft (MSFT:NASDAQ) gaining a narrowing win over rival Alphabet (GOOG:NASDAQ) in AI cloud computing stakes.  

Both big tech firms announced forecast-beating quarterly revenue after the market close on 25 October, but their respective cloud divisions told different stories. Growth at Microsoft’s Azure cloud unit, and across the company generally, accelerated in the quarter, which executives hailed as a sign of higher-than-expected consumption of AI-related services.

Yet in the same quarter, growth at Azure’s smaller rival Google Cloud slowed by nearly six percentage points. The most likely conclusion is that Google Cloud isn’t yet benefiting much from the rollout of various AI-powered services.

CLOUD NUMBERS

Google Cloud third quarter revenue rose 22.5% to $8.41 billion, the slowest growth since at least the first quarter of 2021, and versus $8.62 billion expected by Wall Street. The cloud unit reported operating income of $266 million, compared with an operating loss of $440 million a year ago. By contrast, revenue from Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, grew to $24.3 billion, compared with analysts’ estimate of $23.49 billion,

‘Despite Alphabet topping quarterly earnings and revenue estimates, investors were disappointed by the relatively weak performance at its Google Cloud platform, which is at risk of falling further behind Azure and AWS’, said Jesse Cohen, senior analyst at Investing.com.

Comments from Google executives suggest the cloud unit is suffering more than Microsoft as customers trim their spending, a trend that has been underway across the industry for several quarters.

Cloud growth has been slowing for a number of quarters / Image source: Adobe

So while Alphabet chief executive Sundar Pichai talked up potential on the firm’s earnings call, saying Google Cloud was ‘definitely seeing a lot of interest in AI,’ Microsoft boss Satya Nadella was able to spend the opening minutes of his own earnings call reeling off a bunch of statistics about all the ways customers are using Microsoft’s AI services.

BIG TECH, BIG STAKES

Investors expect a lot from big tech, which means major companies are measured against lofty targets. Both Microsoft and Alphabet are betting big on AI to sharpen their business growth scope and stay at the top of the tech industry, so hints of weakness are dealt with harshly.

Pre-market data shows Microsoft shares are set to open nearly 4% up when Wall Street reopens later today at $342.60. Contrast that with Alphabet’s anticipated more than 6% decline to $130.82.

Alphabet may have had issues with its cloud business, but the company can comfort itself with promising digital advertising results. That’ll bode well for rivals like Meta Platforms (META:NASDAQ), Amazon (AMZN:NASDAQ) and Pinterest (PINS:NYSE), suggesting that companies are still willing and able to splash out on ads on social media sites.

Take a step back, and investors might conclude that so far, so good for big Tech. While plenty of businesses have been all but wiped out by market conditions and high interest rates, major tech companies have managed to hold relatively steady, as demonstrated by Microsoft’s 37% and Alphabet’s 56% (before last night’s declines) year-to-date stock performances. 

Amazon, the other big beast in the cloud game, reports after-hours Thursday (26 Oct).

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