October 26, 2023

Alphabet shares fell sharply after its cloud unit’s growth slowed to a near three-year low, raising concerns that the company is losing ground to Microsoft in the race to capitalize on generative artificial intelligence (AI).

Microsoft’s Azure cloud platform, on the other hand, saw a rebound in growth in its first quarter, driven by cloud spending from businesses preparing to roll out AI features. Alphabet’s cloud unit, Google Cloud, was hit harder by the slowdown in spending from smaller clients.

The contrasting performance of the two cloud giants suggests that Microsoft is better positioned to lead the next wave of growth in the cloud computing market. One reason for Microsoft’s success is its focus on its core business clients, many of which already use its software services. Google Cloud, on the other hand, has been more focused on startups. Another factor is Microsoft’s partnership with OpenAI, which gives it access to cutting-edge AI technology. Google Cloud is also developing its own AI capabilities, but it is still behind Microsoft in this area.

Google Cloud does offer AI capabilities through its Vertex platform, but it is not yet clear whether this will be enough to win over big-ticket enterprise customers from Microsoft and Amazon Web Services (AWS). Analysts say that Alphabet’s slower roll-out of AI services is delaying the earnings boost from the new technology. This is a concern for investors, who are already worried about the company’s focus on startups.

Microsoft, on the other hand, is seen as being more aggressive in bringing AI products to market. The company is already offering a test version of its “Copilot” AI service, which is powered by OpenAI’s technology. Copilot will be launched officially next month for $30 a month. Analysts say that Microsoft’s Copilot offering will further drive up adoption of its AI services. This is a major advantage over Alphabet, which is still playing catch-up in the AI race.

The sources for this piece include an article in Reuters.