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Satya Nadella, chief executive officer of Microsoft Corp., during the company’s Ignite Spotlight event in Seoul on Nov. 15, 2022.

SeongJoon Cho | Bloomberg | Getty Images

Google has for years been playing catch-up in the cloud infrastructure market, where it’s seen in the industry as a distant third in the U.S., behind Amazon and Microsoft. The challenge for investors is that the three companies don’t report cloud infrastructure metrics in a way that makes them easily comparable.

However, an internal estimate assembled by Google employees, based on a leaked Microsoft document and some extrapolation of other market statistics, suggests Google believes it’s closer to second place than analysts think.

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Google’s document estimates that Microsoft generated under $29 billion in Azure consumption revenue in the latest fiscal year, which ended June 30, reflecting the value of cloud infrastructure services used by clients. That’s several billion dollars less than what Wall Street analysts had forecast. Bank of America was the most bullish, predicting Azure would pull in $37.5 billion in fiscal 2022. Cowen predicted revenue of $33.9 billion and UBS said $32.3 billion.

The document from Google has Azure ending the 2022 fiscal year with an operating loss of almost $3 billion, down from a loss of more than $5 billion the prior year. It claims that Azure’s sales and marketing costs approached $10 billion, accounting for 34% of consumption revenue. Microsoft said sales and marketing costs for the whole company equaled 11% of revenue over the same period.

One analyst dismissed Google’s bottom-line tally.

“There’s no way it’s that big of a loss,” said Derrick Wood, an analyst at Cowen who has the equivalent of a buy rating on Microsoft stock. His research shows Azure boasting an operating margin above 30%, compared with Google’s estimate of a -10% margin.

Cloud represents one of the most high-stakes battles in technology, as the biggest and most well-capitalized U.S. tech companies try to win lucrative deals from large enterprises and government agencies, which are increasingly pushing critical computing and storage needs out of their own data centers.

Google and Microsoft have been investing heavily to keep Amazon Web Services from dominating the market the e-commerce company pioneered in 2006. But the companies aren’t completely forthcoming about their results.

Microsoft provides year-over-year growth for Azure and other cloud services but doesn’t give a dollar figure, nor does it specify how much of the growth comes just from Azure. The Azure and other cloud services metric also includes, among other things, enterprise mobility and security, or EMS, tools that can be sold separately.

Google parent Alphabet, meanwhile, doesn’t tell investors how much revenue or operating income the Google Cloud Platform, or GCP, generates. It only discloses those figures for what it calls Google Cloud, which includes subscriptions to Google Workspace collaboration software, as well as GCP, a direct Azure rival.

Amazon reports both revenue and operating income for AWS, giving investors the cleanest picture of its cloud business among the three companies. AWS recorded an operating margin of 26% in the third quarter, while Google’s cloud group reported an operating margin of -10%.

Microsoft has never laid out gross profit or operating profit for the Azure division. CEO Satya Nadella said in 2019 that customer adoption of “higher-level services” beyond raw computing and storage resources can lead to “good margins long term.”

According to data from Gartner, AWS controlled 39% of the global cloud infrastructure market in 2021, followed by Microsoft at 21%, China’s Alibaba at 9.5% and Google at 7.1%.

Representatives for Google and Microsoft declined to comment for this story.

How Google came up with its estimates

According to Google’s document, the analysis follows an Insider article, which cited a leaked Microsoft presentation that included Azure consumption revenue, or ACR, for its U.S. enterprise business in the past few years. Google said in its document that the leaked presentation allowed for a more accurate modeling of the business, and Google’s calculations suggest that ACR is the main source of revenue for Azure and other cloud services.

Google made a series of assumptions based on the leaked ACR information. It came up with a possible number for ACR abroad using Microsoft’s statement that around 51% of total revenue in fiscal 2022 derived from customers located in the U.S. Google then added in revenue from other customer segments, such as public sector and regulated industries, based on market data from Gartner and other sources.

To determine operating expenses, Google assumed that 65,000 people are dedicated to or work mainly on Azure, referring to an Insider report that said Microsoft’s Cloud and Artificial Intelligence organization had over 60,000 employees.

If Google is right, Microsoft’s ACR would be about 40% the size of Amazon’s AWS business and 27% larger than Google’s cloud business.

“Analysts include revenue allocations from EMS and Power BI, both of which are highly profitable SaaS businesses with estimated gross margins above 80%,” Google’s document says. “For a realistic analysis of Azure’s profitability these allocations have to be removed.”

Google concluded that Microsoft’s ACR growth slowed from 61% in the 2020 fiscal year to about 50% in the 2022 fiscal year. That’s faster growth than the figure Microsoft provides for all of Azure and other cloud services, which went from 56% expansion to 45% over the same period.

Google projected that Azure’s gross profit, or the revenue left after accounting for the cost of goods sold, expanded from below 29% in fiscal 2019 to almost 63% in fiscal 2022. Microsoft CFO Amy Hood has said hardware and software efficiencies helped the company widen Azure’s gross margin.

At those levels, cloud would be less profitable than Microsoft’s Windows and Office software franchises. Microsoft’s total gross margin in the 2022 fiscal year was about 68%.

None of the three U.S. market leaders announces gross margins for their cloud groups.

Cowen expects the broader Azure and other cloud services group to account for 27% of Microsoft’s revenue in the current 2023 fiscal year. He says Microsoft could clarify things by providing a more granular breakdown.

“To have a more specific disclosure on that would be helpful,” Wood said.

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AI could affect 40% of jobs and widen inequality between nations, UN warns

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AI could affect 40% of jobs and widen inequality between nations, UN warns

Artificial intelligence robot looking at futuristic digital data display.

Yuichiro Chino | Moment | Getty Images

Artificial intelligence is projected to reach $4.8 trillion in market value by 2033, but the technology’s benefits remain highly concentrated, according to the U.N. Trade and Development agency.

In a report released on Thursday, UNCTAD said the AI market cap would roughly equate to the size of Germany’s economy, with the technology offering productivity gains and driving digital transformation. 

However, the agency also raised concerns about automation and job displacement, warning that AI could affect 40% of jobs worldwide. On top of that, AI is not inherently inclusive, meaning the economic gains from the tech remain “highly concentrated,” the report added. 

“The benefits of AI-driven automation often favour capital over labour, which could widen inequality and reduce the competitive advantage of low-cost labour in developing economies,” it said. 

The potential for AI to cause unemployment and inequality is a long-standing concern, with the IMF making similar warnings over a year ago. In January, The World Economic Forum released findings that as many as 41% of employers were planning on downsizing their staff in areas where AI could replicate them.  

However, the UNCTAD report also highlights inequalities between nations, with U.N. data showing that 40% of global corporate research and development spending in AI is concentrated among just 100 firms, mainly those in the U.S. and China. 

Furthermore, it notes that leading tech giants, such as Apple, Nvidia and Microsoft — companies that stand to benefit from the AI boom — have a market value that rivals the gross domestic product of the entire African continent. 

This AI dominance at national and corporate levels threatens to widen those technological divides, leaving many nations at risk of lagging behind, UNCTAD said. It noted that 118 countries — mostly in the Global South — are absent from major AI governance discussions. 

UN recommendations 

But AI is not just about job replacement, the report said, noting that it can also “create new industries and and empower workers” — provided there is adequate investment in reskilling and upskilling.

But in order for developing nations not to fall behind, they must “have a seat at the table” when it comes to AI regulation and ethical frameworks, it said.

In its report, UNCTAD makes a number of recommendations to the international community for driving inclusive growth. They include an AI public disclosure mechanism, shared AI infrastructure, the use of open-source AI models and initiatives to share AI knowledge and resources. 

Open-source generally refers to software in which the source code is made freely available on the web for possible modification and redistribution.

“AI can be a catalyst for progress, innovation, and shared prosperity – but only if countries actively shape its trajectory,” the report concludes. 

“Strategic investments, inclusive governance, and international cooperation are key to ensuring that AI benefits all, rather than reinforcing existing divides.”

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Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner

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Nvidia positioned to weather Trump tariffs, chip demand 'off the charts,' says Altimeter's Gerstner

Altimeter CEO Brad Gerstner is buying Nvidia

Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.

“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.

President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.

The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.

Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.

Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”

He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.

“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”

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YouTube announces Shorts editing features amid potential TikTok ban

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YouTube announces Shorts editing features amid potential TikTok ban

Jaque Silva | Nurphoto | Getty Images

YouTube on Thursday announced new video creation tools for Shorts, its short-form video feed that competes against TikTok. 

The features come at a time when TikTok, which is owned by Chinese company ByteDance, is at risk of an effective ban in the U.S. if it’s not sold to an American owner by April 5.

Among the new tools is an updated video editor that allows creators to make precise adjustments and edits, a feature that automatically syncs video cuts to the beat of a song and AI stickers.

The creator tools will become available later this spring, said YouTube, which is owned by Google

Along with the new features, YouTube last week said it was changing the way view counts are tabulated on Shorts. Under the new guidelines, Shorts views will count the number of times the video is played or replayed with no minimum watch time requirement. 

Previously, views were only counted if a video was played for a certain number of seconds. This new tabulation method is similar to how views are counted on TikTok and Meta’s Reels, and will likely inflate view counts.

“We got this feedback from creators that this is what they wanted. It’s a way for them to better understand when their Shorts have been seen,” YouTube Chief Product Officer Johanna Voolich said in a YouTube video. “It’s useful for creators who post across multiple platforms.”

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