Google’s cloud outpaces AWS, Azure in Q3 as AI battle heats up

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’s cloud outpaces AWS, Azure in Q3 as AI battle heats up

Alphabet CEO Sundar Pichai speaks at the Munich Security Conference at the Hotel Bayerischer Hof in Munich, Germany, on February 16, 2024.

Tobias Hase | Picture Alliance | Getty Images

With Wall Street laser focused on cloud computing this week,

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outpaced its rivals in growth, a key sign for investors that the internet company is gaining traction in artificial intelligence.

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’s cloud business, which includes infrastructure as well as software subscriptions, grew 35% year over year in the third quarter to $11.35 billion, accelerating from 29% in the prior *******.

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Web Services, which ******** the market leader, grew 19% to $27.45 billion, meaning it’s more than twice the size of

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Cloud but expanding about half as quickly. Second-place

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said revenue from Azure and other cloud services grew 33% from a year earlier.

Five of the six trillion-dollar tech companies reported results this week, with AI chipmaker Nvidia as the outlier.

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, Alphabet and

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always report around the same time, giving investors a snapshot of how the cloud wars are playing out.

“While Alphabet has often been criticized as a Johnny-one-note for its dependence on digital advertising, the rapid growth of

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Cloud has begun to diversify the company’s revenue,” analysts at Argus Research, who recommend buying the stock, wrote in a report on Oct. 31.

For a long time, cloud was a money sink for

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, but that’s no longer the case.

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reported a 17% cloud operating margin in the third quarter, after first turning a profit last year. It was “a real beat to expectations there,” Melissa Otto, head of technology, media and telecommunications sector research at Visible Alpha, said on CNBC this week. She said she isn’t sure if the company can sustain that level of profitability.

The opposite story has been true at

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, which has long counted on AWS for the bulk of total profit.

AWS’ operating margin for the the third quarter was 38%, which analysts at Bernstein described as a “whopping” number. Executives have been careful with hiring and have discontinued less popular AWS services. Also, at the beginning of 2024,

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extended the useful life of its servers from five years to six, a change that boosted the operating margin by 200 basis points, or 2 percentage points.

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this week started giving investors more accurate readings of its Azure public cloud. When the company reported Azure revenue growth in the past, the number would include sales of mobility and security services and Power *** data analytics software.

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, which is the lead investor in ChatGPT creator OpenAI, is getting a hefty boost from AI services.

“Demand continues to be higher than our available capacity,” Amy Hood,

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’s finance chief, said on the company’s earnings call.

While Azure growth in the current quarter will moderate a bit, Hood said it should pick up in the first half of 2025 “as our capital investments create an increase in available AI capacity to serve more of the growing demand.”

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is seeing a similar dynamic.

“I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply,”

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CEO Andy Jassy said on his company’s earnings call.

To help ease the burden,

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relies to a degree on its own processors, in addition to Nvidia’s graphics processing units (GPUs). Jassy said clients are showing interest in Trainium 2, the company’s second-generation chip for training models.

“We’ve gone back to our manufacturing partners multiple times to produce much more than we’d originally planned,” he said.

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is now on the sixth generation of its own custom tensor processing units for AI. CEO Sundar Pichai told analysts that he’d been spending time with the TPU team.

“I couldn’t be more excited at the forward-looking roadmap, but all of it allows us to both plan ahead in the future and really drive an optimized architecture for it,” he said.

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introduced its own AI chip in the cloud, Maia, a year ago. The company has started to use Maia chips to power its own services, but it hasn’t yet made it available for customers to rent out, a spokesperson said.

Analysts at DA Davidson said in a note this week that they don’t see this as a battle

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can win going up against

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and

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. They have a neutral rating on

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.

Oracle, which generally ranks fourth among U.S. cloud infrastructure companies, is expected to report quarterly results in December. In its last report, Oracle said cloud infrastructure revenue jumped 45% to $2.2 billion, up from 42% growth in the prior quarter.

Oracle recently partnered with its three ******* cloud rivals to make its databases available on their services, a move that Chairman Larry Ellison said on the last earnings calls, “will turbocharge the growth of our database business for years to come.”

WATCH: Otto: The scale of Alphabet’s cloud business, and spend on AI infrastructure, will be critical

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#Googles #cloud #outpaces #AWS #Azure #battle #heats

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