Google parent Alphabets cloud business crawled to its slowest in at least 11 quarters, missing revenue estimates and sending the company’s stock down 5.7% after hours. The slide came even as sales at rival Microsoft’s (MSFT.O) cloud unit boomed, boosted by a robust global economy and its investments in artificial intelligence.
Alphabet, which also owns YouTube and other consumer products, reported earnings on Tuesday that beat expectations for profit and sales, but the cloud miss was a big hit. Investors had expected a much stronger showing, given the company’s focus on generative artificial intelligence technology and its desire to position its cloud division as the leading choice for generative AI startups that need significant computing power to run their operations.
But the unit only delivered $8.41 billion in sales, up 22% year-on-year but well short of the $8.64 billion analysts expected. Finance chief Ruth Porat attributed the lower-than-expected revenue to customer optimization efforts. That generally means customers are holding off on new projects or reducing spending.
The performance contrasted with robust growth at Microsoft’s Azure platform, whose revenues grew by almost 30%. Microsoft said its cloud business was gaining momentum globally, especially in the United States, which now has over a million active customers.
Analysts expect the trend to continue, with Microsoft and Amazon Web Services (AWS) increasing market share as customers look for cheaper ways to do their computing. Combined, those two companies make up the largest cloud service providers in the world.
On the other hand, Pichai spent most of his earnings call focusing on artificial intelligence and touting the company’s latest tools for YouTube creators, which are designed to help them create more engaging content. He also discussed a suite of machine learning and generative AI technologies being developed to improve search results and provide better customer support.
Alphabet’s other revenues, which include its search engine and advertising business, rose 11% to $44 billion in the third quarter, slightly beating analysts’ estimates. That was helped by a rise in ad prices, up 5% year-on-year.
Despite the weakening demand for cloud software, Alphabet still increased profits from its non-cloud businesses. Its other revenue, which includes its experimental “moonshot” enterprises like the internet-delivery balloons and smart home device maker Nest, as well as more established businesses such as Verily Life Sciences and Google Fiber, posted a profit of $266 million.
Despite the stronger-than-expected profit and sales, the drop in the shares of Google and its parent company reflects how much investors want the company to deliver gains in artificial intelligence, which it sees as its next significant opportunity. But its cloud business remains a distant second to competitors, and the slowdown in the sector is likely to weigh on its results. Copyright 2023 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
