Major tech companies Microsoft (MSFT) and Alphabet (GOOG, GOOGL) have invested heavily in artificial intelligence, which is having different impacts on their cloud businesses. Microsoft — owning a 49% stake in ChatGPT — has been integrating AI capabilities into its Azure cloud platform. This focus helped Azure revenue grow 29% in its latest quarter. In contrast, Google's cloud business did not see the same AI-driven boost, despite Google being a leader in AI research.
Yahoo Finance Tech Editor Dan Howley discusses the growing reliance on AI in tech companies, outlining investor concerns that Google could be falling behind Microsoft in this regard.
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SEANA SMITH: Let's get to someone who certainly knows what he's talking about when it comes to AI and cloud, and where these two companies stand, what we learn from these prints last night. "Yahoo Finance's" Dan Howley joins us now. Dan, your first take.
DAN HOWLEY: Yeah, Seana. It was really a tale of two clouds, basically, a tale of two companies. These results show that Microsoft is truly ahead of Google when it comes to its AI deployment, when it comes to the customers that it's signing up. Sundar Pichai, basically, started out the Google call talking about AI, but then discussing other aspects. And mentioned the cloud but only briefly. Whereas, if you listened to Satya Nadella on Microsoft, he just rattled off statistic after statistic after statistic about how AI is being rolled into the cloud, how they're doing more and more with it, how they're offering more capabilities, how they have open source options from Hugging Face and Meta, and how they have so many subscribers already signed up for this.
And so that's where I think investors saw-- the look at Azure and the growth that Azure, the 29%. They were expecting 27% growth. That's a re-acceleration of growth, by the way. The category had seen a slowing of growth over time. And people were taking pause over that. But this re-acceleration really getting people excited, I think. And then the idea that AI is playing such a big role here and Nadella pointing that out multiple times during the call.
With Google, it was more along the lines of we have AI. We're doing well with AI. But it's not quite impacting the cloud aspect as much as we would like to see yet. So I think that's where investors are a little concerned or perhaps taking stock of what's going on with Google and Alphabet as far as the cloud operations go.
And can they keep up with Microsoft and AI? Which is a while statement to make considering that the very reason why these ChatGPT-- the T stands for transformer. The reason why these transformers exist is because of Google Research. And Microsoft taking the lead with that OpenAI work.
BRAD SMITH: Dan, when we think about how AI is being positioned or the narrative that these companies are telling around it, it's how AI is going to essentially be a co-pilot. What more did we get on details about what the pricing for a co-pilot, or how the contribution to margins that a co-pilot may also offer to these two major companies? What that might look like for investors who are looking for any type of clarity on these investments, as well as the payoff?
DAN HOWLEY: Well, Microsoft had said that their Microsoft 365 is going to be 30-- co-pilot is going to be $30 per seat, per person. And so that's something that's really interesting because it's on the higher end of what people are expecting. As far as margins, there's going to be some problems I assume with the outlay that they're going to have to make as they continue to build out these different capabilities, these different offerings.
They're going to have to buy more hardware to run servers. They're going to have to continue to invest there. And that's on both sides. That's what Google and Microsoft. And Microsoft apparently working on its own chip. And Google working with its own chip. So it could be a hit to margins over time. But I wouldn't assume it to be too bad.