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Microsoft seems to be gaining big over Google parent Alphabet in cloud business. What’s reportedly helping Microsoft is the race to make money from generative artificial intelligence through early bets on OpenAI and focus on big clients. Cloud spending by businesses preparing to roll out AI features powered a rebound in growth for Microsoft’s Azure platform in its first quarter.
What may be hurting Google
In a sharp contrast, growth at Alphabet’s cloud unit has hit a near three-year low as its big exposure to smaller clients dampened growth.The fall has raised worries that the Google parent could lose share in the cloud-computing market. According to a report in news agency Reuters, in the battle to tap the next growth driver for the cloud business, Microsoft has focused on its core business clients that already use many of its software services, while Google has turned to startups. The results are said to show that cloud spending is coming from enterprise clients, whereas smaller businesses are reducing their expenditure.
“Demand for artificial intelligence drove Microsoft’s growth. Demand among Google’s larger clients was similar, but the firm is more exposed to high-growth and startup clients, which have been more aggressive with cost-control efforts,” Morningstar analyst Ali Mogharabi told the agency.
“Microsoft is using its incumbent software relationships, whereas Google is coming in as a little bit of a challenger here,” told Krishna Chintalapalli, portfolio manager at Parnassus Investments, an investor in Alphabet and Microsoft.
AI to power growth for Google too, but in the long term
Some analysts are optimistic about strength in Alphabet’s core search business, but they have warned that the weakness in the cloud business may continue. “It’s unclear just how widespread Google Cloud optimization efforts are and how far along customers are in the journey, but expect these headwinds to persist for at least a few more quarters,” Bernstein analysts said.
AI is expected to become more of a growth driver in 2023 for Alphabet after the expected roll out of Gemini, which is a collection of large-language models. “Early results are very promising (for Gemini),” CEO Sundar Pichai recently said.
What may be hurting Google
In a sharp contrast, growth at Alphabet’s cloud unit has hit a near three-year low as its big exposure to smaller clients dampened growth.The fall has raised worries that the Google parent could lose share in the cloud-computing market. According to a report in news agency Reuters, in the battle to tap the next growth driver for the cloud business, Microsoft has focused on its core business clients that already use many of its software services, while Google has turned to startups. The results are said to show that cloud spending is coming from enterprise clients, whereas smaller businesses are reducing their expenditure.
“Demand for artificial intelligence drove Microsoft’s growth. Demand among Google’s larger clients was similar, but the firm is more exposed to high-growth and startup clients, which have been more aggressive with cost-control efforts,” Morningstar analyst Ali Mogharabi told the agency.
“Microsoft is using its incumbent software relationships, whereas Google is coming in as a little bit of a challenger here,” told Krishna Chintalapalli, portfolio manager at Parnassus Investments, an investor in Alphabet and Microsoft.
AI to power growth for Google too, but in the long term
Some analysts are optimistic about strength in Alphabet’s core search business, but they have warned that the weakness in the cloud business may continue. “It’s unclear just how widespread Google Cloud optimization efforts are and how far along customers are in the journey, but expect these headwinds to persist for at least a few more quarters,” Bernstein analysts said.
AI is expected to become more of a growth driver in 2023 for Alphabet after the expected roll out of Gemini, which is a collection of large-language models. “Early results are very promising (for Gemini),” CEO Sundar Pichai recently said.
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