Microsoft is still winning the cloud war against Google — but in AI, it's all to play for

• Microsoft and Google hit net estimates amid an intensifying rivalry complete AI and unreality growth.
• Google's maturation was fueled by AI progress, while Azure remains cardinal for Microsoft.
• Both companies are spending large connected AI, and investors are waiting to spot that construe into returns.

Microsoft whitethorn beryllium up of Google successful unreality computing, but nan 2 tech giants are still battling for AI power — and ramping up their multibillion-dollar expenditures successful nan process.

Both Big Tech companies reported net this week, beating analysts' estimates.

Google Cloud gross grew 35% twelvemonth complete twelvemonth to $11.4 billion, which nan institution said was bolstered by "accelerated growth" successful its AI products.

Microsoft's Intelligent Cloud segment, which includes Azure, increased by 20% twelvemonth complete twelvemonth to $24.1 billion.

Earlier this week, Microsoft dialed up nan pair's unreality rivalry, accusing Google of moving "shadow campaigns" to power European unreality regulation. In response, Google told BI it had been "very public" astir concerns pinch Microsoft's unreality licensing.

While Google reported stronger unreality growth, Microsoft still leads it successful unreality marketplace share, pinch some down leader Amazon Web Services.

Cloud is simply a peculiarly important conception for Microsoft. Jeremy Goldman, EMARKETER's elder head of briefings, called Azure "the linchpin of Microsoft's maturation strategy." He said that while Microsoft's unreality business showed beardown capable gains, it decelerated from nan "breakneck pace" of erstwhile quarters.

Tracy Woo, main expert astatine Forrester, told BI: "Google Cloud is increasing but from a overmuch smaller spot successful nan market. Google is overmuch much further down successful nan marketplace arsenic acold arsenic marketplace traction goes. It will return overmuch bigger customer gains for it to travel remotely adjacent to Azure's size."

All eyes connected AI

Wall Street is besides intimately watching for returns connected AI investments from nan 2 companies and Big Tech crossed nan board.

Investors person been eyeing gross expectations arsenic companies put heavy successful AI investigation and development, keeping a adjacent oculus connected capex expenditures.

Microsoft said connected Wednesday that it had spent $20 cardinal connected AI superior expenditures for nan quarter, almost double nan $11.2 cardinal spent successful nan first 4th a twelvemonth earlier.

In contrast, Alphabet's capex rose 62% to $13 billion successful nan 3rd quarter.

AI was a cardinal driver successful Google's quarterly growth, pinch CEO Sundar Pichai saying nan company's AI investments are already "paying off." The company's shares were up much than 5% successful after-hours trading but fell connected Thursday.

Microsoft, which reported net connected Wednesday, saw its shares dip 3.7% successful premarket trading connected Thursday and fell further passim nan day.

Jake Behan, caput of superior markets astatine Direxion, said that location were still lingering concerns astir Microsoft not afloat capitalizing connected its AI investments, which could person contributed to nan dip successful stock price.

AI winners and losers

Google acquired starring British AI startup DeepMind successful 2014. But Microsoft's early finance successful OpenAI, nan institution down ChatGPT, has near Google battling a communicative — deserved aliases not — that it has fallen down successful nan AI race.

However, Google's gross and unreality business maturation whitethorn beryllium early signs that Alphabet's AI spending is already paying off. The institution has besides successfully incorporated AI into its ain operations, pinch Pichai saying that much than a 4th of caller codification astatine Google is made by AI and past checked by employees.

Woo said that Google was "caught flat-footed pinch nan announcement of Microsoft and its Open AI business and consequent merchandise of Copilot."

She added: "It doesn't astonishment maine that Azure is slowed successful maturation because Google had a batch of crushed to dress up arsenic acold arsenic AI goes. Google has now been capable to move immoderate of its early AI blunders into existent marketplace momentum that were utilized to seeing from Google."

In a note, BofA Securities called Google's Cloud maturation a "positive surprise" that suggested nan "AI maturation rhythm has arrived."

In contrast, EMARKETER's Goldman said that while Microsoft's fundamentals are solid, "the marketplace needs reassurance that these monolithic AI and unreality investments will thrust existent growth."

It's still up for statement who will look victorious successful nan wider AI race. It depends connected really successfully and quickly some companies tin present connected AI.

"Capex expenditures relating to AI are nan main focus," Behan said. "The companies that tin monetize those expenses will beryllium nan winners, and those who cannot will beryllium nan losers."