Date: 2023.10.29
In recent quarterly results, both Microsoft and Google-parent Alphabet showcased growth in their core businesses. Google’s advertising revenue saw a 9% YoY increase, reaching $59.6 billion, with YouTube’s advertising revenue growing by 12%. This spike coincided with a period of reduced TV show and movie releases due to Hollywood labor strikes. However, Google’s cloud business underperformed, growing 22% YoY to $8.4 billion, 3% below expectations. In contrast, Microsoft’s Azure cloud service reported a 29% revenue increase to roughly $16.7 billion. Furthermore, Microsoft’s other sectors, including its Windows operating system, displayed resilience as the earlier dip in PC sales stabilized, resulting in robust operating earnings. Microsoft’s projected revenue for the upcoming December quarter also appears promising. These contrasting results led to a nearly 4% rise in Microsoft’s stock, while Google’s parent company saw a 6% decline.
The competition in AI between Microsoft and Google continues. Microsoft, through a strategic partnership with OpenAI, integrated OpenAI’s ChatGPT with Bing, aiming to dominate the search domain, an area where Google has a substantial lead. Microsoft’s CEO, Satya Nadella, is heavily invested in this initiative, with efforts such as the Microsoft 365 Copilot marking the beginning of this AI rivalry. These moves are seen as a direct challenge to Google’s stronghold, aiming to narrow the search engine market gap. Furthermore, Microsoft’s aggressive AI adoption has been noted to outperform Alphabet’s in the first half of the year, particularly with the launch of AI-enabled features like CoPilot, attracting over one million paying users, indicating a significant stride in the AI race.
On the other hand, Google’s AI advancements are more rooted in its cloud business and internet search, with AI-powered features enhancing its search business. However, Microsoft’s broader software and cloud services portfolio gives it an edge, as it caters to businesses willing to invest in automation technologies early on. The revenue growth, especially in Microsoft’s Azure public cloud service, starkly contrasts with Google’s cloud business growth, which fell below Wall Street’s forecasts in the recent quarter. This growth indicates Microsoft’s stronger position in the cloud and AI domains, which is further emphasized by its recent acquisition of Activision Blizzard boosting its financial outlook.
Both tech giants face a long and costly competition ahead, with substantial capital expenditures aimed at advancing their AI capabilities. During the quarter, Microsoft registered a capital expenditure of $9.9 billion. Meanwhile, Google’s capital expenditure exceeded $8 billion. They are also leveraging high-demand processors like Nvidia’s H100 chips for enhanced AI functionalities in data centers, indicating the high investment required to stay competitive in the AI domain. While Microsoft currently appears to be in the lead, the pressing question for Google is whether they’ve effectively leveraged their vast user data—a critical asset in the AI realm—to train a superior AI model, especially when integrated with Google Search.
