Google's cloud advantages powered by AI are encouraging for Microsoft and Amazon

Alphabet Inc. (NASDAQ: GOOGL), the parent company of Google, has reported a significant increase in cloud sales for the July-September quarter, suggesting positive trends for leading cloud competitors Microsoft (NASDAQ: MSFT) and Amazon.com (NASDAQ: AMZN). This growth indicates a rising demand for AI-enhanced computing capabilities.

The stock of Alphabet rose by 5.5% in premarket trading on Wednesday, following the company's announcement of a remarkable 35% increase in Google Cloud revenue, marking its fastest growth rate in eight quarters. Analysts had predicted a 29% increase, according to LSEG.

In addition, Alphabet's core advertising business saw a 10% rise.

Angelo Zino, a senior equity analyst at CFRA Research, commented, "When Microsoft and Amazon release their reports this week, Google is likely to showcase the most impressive cloud growth numbers among them. It’s expected to outperform the other two for this quarter."

Despite being smaller than its rivals, Google Cloud made up 13% of Alphabet’s total sales in the third quarter, up from 11% the previous year. For comparison, Amazon's AWS contributed 18% to its revenue in the April-June quarter, while Microsoft's Intelligent Cloud segment, which includes Azure, accounted for 44% of its total revenue.

Bob O'Donnell, president and chief analyst at TECHnalysis Research, stated, "The continued growth of Google Cloud this quarter clearly reflects recognition of the company’s AI capabilities as a major factor in organizations opting to partner with Google."

This marks the fourth consecutive quarter of reaccelerating growth for Google Cloud, which had experienced a slowdown in previous quarters due to what Alphabet referred to as "customer optimization efforts."

Although Google Cloud currently has less AI capacity compared to its competitors, its emphasis on advanced Tensor Processing Units—custom chips designed for AI—and enhanced security features have helped it distinguish itself from Azure and AWS, thereby attracting more customers, noted Charles Rogers, an analyst at M Science.

Like its competitors, Alphabet has been investing heavily in AI, which is also enhancing its search business to better compete with Microsoft-backed OpenAI. The company has committed to significant investments in its cloud infrastructure, announcing plans to allocate billions towards establishing data centers globally.

Additionally, Google has incorporated its generative AI chatbot, Gemini, into its cloud services, providing customers with features that include AI-driven code generation, data processing, and insights into cybersecurity threat risks.

These strategic investments are yielding results, as customers are increasing their expenditures on Google’s AI services, particularly the Vertex AI platform that enables businesses to utilize Google’s models and develop their own custom models.

Anat Ashkenazi, Alphabet’s new finance chief who succeeded Ruth Porat, stated that the company’s capital expenditures for 2025 are expected to surpass those of this year.

Gil Luria, head of technology research at D.A. Davidson, remarked, "The Google Cloud business has significantly exceeded expectations with notable acceleration and margin growth. This area has become a key segment for Google to convert its AI capabilities into revenue growth."

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.