Some of the biggest tech companies are spending big on AI, which seems to bode well for their cloud businesses.
Over the past two weeks, major cloud computing providers Amazon, Microsoft and Alphabet have reported quarterly profits that beat Wall Street expectations. This is partly because their investments in AI appear to have increased revenue from their cloud divisions, made up of data servers that customers use to power and train their AI models. Shares of Amazon, Microsoft and Alphabet also rose after reporting earnings, evidence that doubling down on their AI strategies appears to be paying off.
“AI has contributed to an acceleration in the growth of these companies’ cloud businesses,” DA Davidson Companies analyst Gil Luria told Business Insider of Amazon, Microsoft and Alphabet. “These three hyperscalers are seeing significant demand from customers and are investing to meet that demand. »
Take Amazon Web Services, the cloud segment of the e-commerce giant, which had net revenue of $25 billion in the first quarter, an increase of 17% over last year during the same period. period, according to Amazon’s latest results.
Amazon executives say part of that growth is due to its latest AI efforts. Last September, Amazon unveiled Bedrock, a suite of large language models that AWS customers can refine to meet their business needs. Two months later, Amazon launched Q, its generative AI assistant, aimed at select users, which is now generally available to AWS customers starting this week. On top of that, the tech giant has bet billions on Anthropic, the startup behind AI chatbot Claude.
“We’re seeing tremendous momentum on the AI front, where we’ve already amassed billions of dollars in revenue,” Amazon CEO Andy Jassy said on the latest investor call of the society. AWS now has an annual run rate of $100 billion, according to earnings.
AWS competitors are in the same boat. Microsoft Cloud generated $35.1 billion in revenue, up 23% year over year, which CEO Satya Nadella attributes in part to investments in AI tools like Microsoft Copilot. AI, he said in the company’s earnings release, is “orchestrating a new era of AI transformation” and “driving business outcomes across all roles and industries.”
“The number of Azure AI customers continues to grow and average spend continues to increase,” CEO Nadella said during Microsoft’s first quarter earnings call.
Similarly, Google Cloud reported revenue of $9.6 billion, up 28% from last year over the same period, according to Alphabet’s latest results. Ruth Porat, Alphabet’s chief financial officer, said on the latest investor call that the numbers reflect “a growing contribution from AI.” After all, Google Cloud now offers generative AI services through Gemini, a family of large language models launched by the search giant in December 2023 that compete with OpenAI’s ChatGPT.
Still, critics may wonder whether these tech giants’ gains will be short-lived, while some business leaders wonder whether the AI sector is overrated. Research firm Capital Economics predicted in late April that the AI-fueled stock market bubble would burst in 2026, which the firm said could weigh on stock valuations.
But Luria, the DA Davidson Companies analyst, doesn’t think that’s likely to happen.
“While some actions may be ahead of schedule, AI is real and not hype,” he told BI.
Cloud providers seem to agree that AI is going nowhere. CEO Jassy detailed a plan in his annual letter to shareholders in April for how Amazon will make AI its next big goal. Google CEO Sundar Pichai said during Alphabet’s latest earnings conference call that the company is “well-positioned for the next wave of AI innovation and opportunities ahead.” Microsoft recently announced that it would invest $1.7 billion in expanding cloud services and AI in Indonesia over the next four years.
Even though tech’s biggest players are still early in their generative AI journey, some executives remain optimistic that AI gains will continue to be critical to their growth – at least for the moment.
“Generative AI and, more broadly, cloud computing are still in their early stages, and we see significant growth opportunities,” said Amazon CEO Jassy.
Amazon, Microsoft and Alphabet did not immediately respond to a request for comment from Business Insider before publication.
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