Tech Giants AI Battle: Microsoft Leads, Google Slows Down

Since the AI boom this year, the quarterly earnings reports of tech giants have been regarded as the "quarterly reports" of their AI preparations. Just this past Tuesday, the "report cards" of Google and Microsoft were exactly the opposite of the previous quarter: Google was leading last time, but this time it was Microsoft.

Overnight, the earnings reports released by Microsoft and Google's parent company, Alphabet, showed that the core businesses of both companies improved in the quarter ending in September, but their cloud businesses, which are closely related to AI, were completely different. This also led to different trends in the stock prices of the two companies after the release of the earnings reports.

During the reporting period, Microsoft's "intelligent cloud" business, including Azure, GitHub, server products, enterprise, and cloud services, generated revenue of $24.3 billion, a year-on-year increase of 19%, higher than analysts' expectations of $23.61 billion.

Among them, the revenue of Azure and other cloud services grew by 29%, although it did not reach the peak of 31% in the first quarter, it did not continue to slow down to 27% as it did in the previous quarter, which was higher than analysts' expectations of 26%. The revenue from server products and cloud services grew by 21%, accelerating from the previous quarter's growth rate of 17%.

On the other hand, Google's revenue exceeded expectations during the reporting period, but cloud computing had its slowest growth in eleven quarters - revenue growth for the quarter was 22.5%, compared to 37.6% growth in the same period last year, 32% growth in the fourth quarter of last year, and 28% growth in the first and second quarters of this year.

Faced with two different "report cards," the market reacted promptly: Microsoft's stock price rose nearly 4% after hours, while Google fell more than 6%. Today, before the market opened, Google fell nearly 6% again.

Subtle Changes

Since the beginning of this year, the "battle" between Microsoft and Google in the field of AI has not stopped. But as of today, the two companies have shown subtle differences in their attitudes towards AI.

As Google said in the conference call last quarter, Google has been actively integrating AI into its existing product: search.

The problem is that Google's main source of revenue from search is advertising, but investors are more concerned about artificial intelligence than advertising. On the other hand, Google Cloud has not benefited much from the launch of various AI-driven services. During this quarter's conference call, Google CEO Sundar Pichai stated that "search engine is still Google's dominant business, and the previously launched chatbot Bard is just an 'early experiment and complementary experience' of the search engine."

In contrast, Microsoft's advantage lies in the fact that "most of its existing business revenue comes from selling software and cloud services to enterprises, and enterprises tend to pay for technology early," because these technologies can help automate tasks such as coding, spreadsheet analysis, and PowerPoint presentations.

Microsoft announced on Tuesday that over 1 million users are currently paying to use its AI-powered Copilot feature. "This tool will be fully open next month, so the market expects Microsoft's revenue to increase significantly by then."

This difference was also reflected in the CEOs' statements during the conference call. Microsoft CEO Satya Nadella spent a lot of time at the beginning of the meeting listing various ways in which customers are using Microsoft's AI, while Sundar Pichai simply said, "Google definitely sees people's strong interest in artificial intelligence."

In addition, Pichai acknowledged that customers are facing "some challenges" in terms of cloud spending, indicating that Google's cloud computing division is not only not benefiting from AI, but also suffering losses due to customers cutting expenses.

Microsoft CFO Amy Hood also mentioned that cloud computing customers have become more cautious in their spending and that the cost of investing in AI infrastructure has impacted this quarter's cloud business gross margin. However, she also stated that the consumption of AI is expected to continue to grow in the coming quarters and that the cost is relatively small in order to "take a leading position in this most exciting new technology product in recent years."