- Amazon, Microsoft and Alphabet's first-quarter profits beat Wall Street expectations.
- Executives claim that some of the profits are due to AI efforts, which are contributing to the increase in cloud revenue.
- These cloud providers see AI as a major growth opportunity, despite concerns about the hype.
Some big tech companies are investing heavily in AI, and their cloud businesses appear to be boding well.
Over the past two weeks, major cloud providers Amazon, Microsoft and Alphabet have reported quarterly profits that beat Wall Street expectations. Part of the reason is that the company's AI investments appear to have boosted revenue in its cloud division, which consists of data servers that customers use to power and train his AI models. Shares of Amazon, Microsoft, and Alphabet also rose after their earnings reports, providing evidence that their doubling down on AI strategies is working.
“AI has helped accelerate the growth of their cloud businesses,” Gil Luria, an analyst at DA Davidson Companies, told Business Insider about Amazon, Microsoft and Alphabet. “These three hyperscalers recognize significant demand from their customers and are making investments to meet that demand.”
Take Amazon Web Services, the e-commerce giant's cloud division, for example. According to Amazon's latest financial results, its first quarter net sales were $25 billion, up 17% from a year earlier.
Amazon executives say some of that growth is due to its latest AI efforts. Last September, Amazon announced Bedrock, a large suite of language models that AWS customers can fine-tune to suit their business needs. Two months later, Amazon released Q, a generative AI assistant, for some users, and starting this week it became generally available to AWS customers. On top of that, the tech giant is betting billions on Anthropic, a startup that developed the AI chatbot Claude.
Amazon CEO Andy Jassy said on the company's latest investor call that “we have significant momentum in the AI space, and we've already racked up billions of dollars in revenue.” Ta. AWS revenues currently reach $100 billion annually.
AWS competitors are in the same position. Microsoft Cloud generated $35.1 billion in revenue, up 23% year over year. CEO Satyanadera attributes some of that to his investments in AI tools such as Microsoft Copilot. He said in the company's earnings call that AI is “orchestrating a new era of AI transformation” and “driving business outcomes across every role and industry.”
“The number of Azure AI customers continues to grow, and average spend continues to grow,” CEO Nadella said during Microsoft's first-quarter earnings call.
Similarly, Alphabet's latest financial results report that Google Cloud's revenue was $9.6 billion, up 28% from the same period last year. Ruth Porat, Alphabet's chief financial officer, said on a recent investor call that the numbers reflect “the growing contribution of AI.” After all, Google Cloud now comes with generative AI services through Gemini. Gemini is a family of large-scale language models that the search giant launched in December 2023 to compete with OpenAI's ChatGPT.
Still, some business leaders wonder if the AI industry is overhyped, and critics may wonder whether the gains for these tech giants will be short-lived. . In late April, research firm Capital Economics predicted that the so-called AI-powered stock market bubble would burst in 2026, which the firm claims could weigh on stock valuations.
But Luria, an analyst at DA Davidson Companies, thinks that's unlikely to happen.
“While some stocks may be getting ahead of themselves, AI is very real and not hype,” he told BI.
Cloud providers seem to agree that AI is not going anywhere. In his annual letter to shareholders in April, CEO Jassy detailed plans for how Amazon will make AI its next big focus. Google CEO Sundar Pichai said during Alphabet's latest earnings call that the company is “well positioned for the next wave of AI innovation and the opportunities ahead.” Microsoft recently announced that it will invest $1.7 billion to expand its cloud services and AI across Indonesia over the next four years.
The biggest companies in the tech industry may still be in the early stages of their journey into generative AI, but some executives say the benefits they derive from AI will continue to be important to their growth, at least for now. I'm looking at it optimistically.
“While generative AI, and the broader cloud space, is still in its relative early stages, we believe there is significant growth opportunity,” said Amazon CEO Jassy.
Amazon, Microsoft and Alphabet did not immediately respond to Business Insider's requests for comment before publication.
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