Google Cloud Slows, Alphabet Feels Pinch; Microsoft Cloud Soars

Google-parent Alphabet's cloud business faced a slowdown in its growth, marking its slowest performance in at least 11 quarters. After reporting lower-than-expected results, the company's stock experienced a 5.7% drop in after-hours trading.

Meanwhile, Reuters reported that rival Microsoft's cloud unit witnessed remarkable sales growth, intensifying the competitive landscape.

Chasing the Power of Artificial Intelligence

Despite exceeding Wall Street estimates for profit and sales, Google's share price decline highlights investors' growing demand for advancements in artificial intelligence, as per Global News. This pressure extends to Google's cloud business, which faces fierce competition from Microsoft's Azure and Amazon.com's AWS.

Worries about a slowing global economy have prompted companies to become cautious in spending on cloud-related services, including costly AI tools. Consequently, Google's cloud unit experienced a revenue growth slowdown to 22.5% in the third quarter, down from 28% in the previous period.

Google Cloud's Quarter Performance

During Q3, Google Cloud's revenue increased 22.5% to $8.41 billion, representing the slowest growth rate since at least Q1 of 2021. Notably, the cloud unit reported an operating income of $266 million, significantly better than the operating loss of $440 million recorded a year ago. Wall Street's expectations for cloud computing revenue stood at $8.62 billion.

Finance chief Ruth Porat mentioned during Tuesday's conference call that the third-quarter cloud growth was driven by "customer optimization efforts" without further details.

In contrast, revenue from Microsoft's Intelligent Cloud unit, which includes the Azure cloud computing platform, grew to $24.3 billion. This figure surpassed analysts' estimate of $23.49 billion, showcasing a 29% growth in Azure revenue. Consequently, Microsoft shares rose 5% in after-hours trading.

Alphabet reported a net profit of $19.69 billion for July-September, reflecting substantial growth from the $13.91 billion recorded the previous year. The company's revenue for the same period also stood at $76.69 billion — slightly exceeding estimates of $75.97 billion.

Google's ad revenue for Q3 reached $59.65 billion, showing an increase compared to $54.48 billion in the previous year. Analysts' average expectation for advertising revenue was $59.12 billion. Notably, YouTube ads generated $7.95 billion in revenue, surpassing last year's $7.07 billion figure.

In Q3, Google's capital expenses amounted to $8.06 billion, primarily driven by investments in technical infrastructure. These investments were predominantly allocated to servers due to a significant increase in AI computing.

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