Google-parent Alphabet’s Cloud Sales Fail to Meet Expectations, While Microsoft’s Cloud Soars

Oct 24 (Reuters) – Alphabet’s (GOOGL.O) cloud business, parent company of Google, experienced its slowest growth in at least 11 quarters. This resulted in a 5.7% drop in the company’s stock after hours, despite rival Microsoft’s (MSFT.O) cloud unit seeing significant growth. The market’s reaction to Google’s performance highlights the importance of delivering gains in artificial intelligence and remaining competitive in the cloud business against Microsoft’s Azure and Amazon.com’s AWS.

Concerns about a slowing global economy have led companies to reduce spending on cloud-related services, including expensive AI tools. As a result, Google’s cloud unit experienced a slower revenue growth of 22.5% in the third quarter, compared to 28% in the previous three months.

In contrast, Microsoft’s Intelligent Cloud unit, which includes the Azure cloud computing platform, reported a revenue growth to $24.3 billion, surpassing the estimated $23.49 billion. Azure revenue increased by 29%, exceeding the 26.2% growth estimated by market research firm Visible Alpha. Following the strong performance, Microsoft shares rose 5% after hours.

“While Alphabet exceeded quarterly earnings and revenue estimates, investors were disappointed by the comparatively weak performance of its Google cloud platform. It is at risk of falling further behind Azure and AWS,” said Investing.com senior analyst Jesse Cohen.

Advertising spending has been strong in sectors like retail and travel, but there has been a pullback in budgets in some areas, impacting Alphabet’s main source of revenue. The company reported ad revenue of $59.65 billion in the third quarter, compared to $54.48 billion the previous year. Analysts had expected $59.12 billion in revenue from the advertising business segment. YouTube ads generated a revenue of $7.95 billion, higher than $7.07 billion in the previous year.

Alphabet’s net profit for the July-Sept. period was $19.69 billion, compared to $13.91 billion a year earlier. The company’s revenue for the quarter ended Sept. 30 stood at $76.69 billion, slightly higher than estimates of $75.97 billion.

Alphabet invested $8.06 billion in capital expenses in the third quarter, predominantly in its technical infrastructure. The largest portion of this investment went into servers, followed by data centers due to increased spending on AI computing.

Earlier this year, Alphabet laid off approximately 12,000 employees, or around 6% of its global workforce, in response to changing economic circumstances. The company also downsized its global recruiting team in September. So far this year, Alphabet recorded severance and related charges of $2.1 billion.

Reporting by Akash Sriram in Bengaluru and Max A. Cherney in San Francisco; Editing by Anil D’Silva and Aurora Ellis

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