(Bloomberg) — Microsoft Corp. and Alphabet Inc., owner of Google, sent a clear message to investors Thursday: Our spending on artificial intelligence and cloud computing is paying off.
Most read on Bloomberg
The companies beat Wall Street estimates with their latest quarterly results, buoyed by a surge in cloud revenue fueled in part by growing use of AI services. Company stocks have rebounded. Alphabet was up 12% and Microsoft was up 4% in premarket trading Friday in New York.
Tech titans have engaged in a fierce battle for dominance in the field of artificial intelligence, with Microsoft teaming up with startup OpenAI to challenge Google’s two-decade stranglehold on internet search. But Thursday’s results showed there is ample room for growth for both companies.
Silicon Valley has hailed 2024 as the year companies will begin deploying generative AI – technology capable of creating text, images and videos from simple prompts. In back-to-back earnings calls, executives from Alphabet and Microsoft said the programs were generating more business for their cloud computing units.
Enterprise customers are more willing to invest long-term in their cloud infrastructure, said Tejas Dssais, research analyst at Global X ETFs. This has helped make a sometimes volatile industry more reliable.
“It’s clear from the Microsoft and Google results that demand for cloud infrastructure is starting to normalize,” Dssais said. “Core cloud infrastructure is showing healthy growth. »
The growing demand for cloud computing is a welcome turnaround for Google, which has long trailed Amazon.com Inc. and Microsoft in the market. After breaking even for the first time last year, Google’s cloud business reported a first-quarter profit of $900 million, well above analysts’ forecasts of $672.4 million. The unit is seen as one of Google’s best growth bets as its core search advertising business matures.
“For years, Google Cloud was typically a weak point on Alphabet’s earnings calls,” said Lee Sustar, principal analyst at Forrester Research Inc. “These latest results show that Google Cloud’s AI offerings have not only prompted corporate clients to take another look, but spend a lot of money.
Google’s success with enterprise customers follows embarrassing setbacks in the consumer market. In February, its flagship AI model, Gemini, came under heavy criticism after spewing out historically inaccurate images, prompting the company to stop generating depictions of people.
On the enterprise side, the market has been a very different story, according to Google Cloud CEO Thomas Kurian. The professional version of Gemini comes with various controls to help marketers ensure content remains consistent with their brands. The service can be used to produce advertisements, prevent cyber threats and even create videos and podcasts.
“We are really excited about the benefits of AI for our…
