Google’s cloud outpaces rivals in third quarter as AI battle heats up
Alphabet CEO Sundar Pichai speaks at the Munich Security Conference at the Hotel Bayerischer Hof in Munich, Germany, on February 16, 2024.
Tobias Hase | Picture Alliance | Getty Images
With Wall Street laser focused on cloud computing this week, Google outpaced its rivals in growth, a key sign for investors that the internet company is gaining traction in artificial intelligence.
Google’s cloud business, which includes infrastructure as well as software subscriptions, grew 35% year over year in the third quarter to $11.35 billion, accelerating from 29% in the prior period.
Amazon Web Services, which remains the market leader, grew 19% to $27.45 billion, meaning it’s more than twice the size of Google Cloud but expanding about half as quickly. Second-place Microsoft said revenue from Azure and other cloud services grew 33% from a year earlier.
Five of the six trillion-dollar tech companies reported results this week, with AI chipmaker Nvidia as the outlier. Amazon, Alphabet and Microsoft always report around the same time, giving investors a snapshot of how the cloud wars are playing out.
“While Alphabet has often been criticized as a Johnny-one-note for its dependence on digital advertising, the rapid growth of Google Cloud has begun to diversify the company’s revenue,” analysts at Argus Research, who recommend buying the stock, wrote in a report on Oct. 31.
For a long time, cloud was a money sink for Google, but that’s no longer the case.
Google reported a 17% cloud operating margin in the third quarter, after first turning a profit last year. It was “a real beat to expectations there,” Melissa Otto, head of technology, media and telecommunications sector research at Visible Alpha, said on CNBC this week. She said she isn’t sure if the company can sustain that level of profitability.
The opposite story has been true at Amazon, which has long counted on AWS for the bulk of total profit.
AWS’ operating margin for the the third quarter was 38%, which analysts at Bernstein described as a “whopping” number. Executives have been careful with hiring and have discontinued less popular AWS services. Also, at the beginning of 2024, Amazon extended the useful life of its servers from five years to six, a change that boosted the operating margin by 200 basis points, or 2 percentage points.
Microsoft this week started giving investors more accurate readings of its Azure public cloud. When the company reported Azure revenue growth in the past, the number would include sales of mobility and security services and Power BI data analytics software. Microsoft, which is the lead investor in ChatGPT creator OpenAI, is getting a hefty boost from AI services.
“Demand continues to be higher than our available capacity,” Amy Hood, Microsoft’s finance chief, said on the company’s earnings call.
While Azure growth in the current quarter will moderate a bit, Hood said it should pick up in the first half of 2025 “as our capital investments create an increase in available AI capacity to serve more of the growing demand.”
Amazon is seeing a similar dynamic.
“I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply,” Amazon CEO Andy Jassy said on his company’s earnings call.
To help ease the burden, Amazon relies to a degree on its own processors, in addition to Nvidia’s graphics processing units (GPUs). Jassy said clients are showing interest in Trainium 2, the company’s second-generation chip for training models.
“We’ve gone back to our manufacturing partners multiple times to produce much more than we’d originally planned,” he said.
Google is now on the sixth generation of its own custom tensor processing units for AI. CEO Sundar Pichai told analysts that he’d been spending time with the TPU team.
“I couldn’t be more excited at the forward-looking roadmap, but all of it allows us to both plan ahead in the future and really drive an optimized architecture for it,” he said.
Microsoft introduced its own AI chip in the cloud, Maia, a year ago. The company has started to use Maia chips to power its own services, but it hasn’t yet made it available for customers to rent out, a spokesperson said.
Analysts at DA Davidson said in a note this week that they don’t see this as a battle Microsoft can win going up against Amazon and Google. They have a neutral rating on Microsoft.
Oracle, which generally ranks fourth among U.S. cloud infrastructure companies, is expected to report quarterly results in December. In its last report, Oracle said cloud infrastructure revenue jumped 45% to $2.2 billion, up from 42% growth in the prior quarter.
Oracle recently partnered with its three bigger cloud rivals to make its databases available on their services, a move that Chairman Larry Ellison said on the last earnings calls, “will turbocharge the growth of our database business for years to come.”
WATCH: Otto: The scale of Alphabet’s cloud business, and spend on AI infrastructure, will be critical
BARCELONA — China’s Huawei isn’t the only smartphone maker adding a third display to its devices.
At the Mobile World Congress (MWC) trade show in Barcelona, a number of firms were showing off their display technology innovations.
The South Korean tech giant Samsung revealed its new “trifold” concept devices at the event: the Flex G and Flex S.
The Flex G has three screens and folds flat inwards and outwards, a bit like a book. The Flex S, on the other hand, has a more zigzag-like shape. It’s meant to resemble an “S” — hence the name.
The Flex S is another concept device Samsung showed off at MWC. It folds in a more zigzag-like way to make an “S” shape.
Ryan Browne | CNBC
It comes after Chinese tech giant Huawei last month launched its new Mate XT, a 3,499 euro ($3,678.56)Â smartphone with three screens, in international markets.
Samsung stressed that its Flex G and S models were only concept devices — so don’t expect to find them on shelves anytime soon.
Still, it’s a sign of where smartphone makers are seeing the next wave of innovation.
‘Sea of sameness’
The smartphone market has hit something of a plateau over recent years, with many models not straying far from the standard form factor of a bar-shaped device.
Apple set the tone for what the devices in our pockets would look like when it launched the first iPhone in 2008. But smartphone makers are now trying to pull the market out of this so-called “sea of sameness.”
On Tuesday, British consumer tech startup Nothing launched its new Phone (3a), a 329-euro ($356.28) budget model with a quirky design and LED light system that lights up when you get calls or notifications.
Nothing co-founder Akis Evangelidis — who is planning a move to India as the startup plans an aggressive expansion push in the country — told CNBC the company is trying to shake up the smartphone market with something more fun and unique.
Using the Indian market as an example, Evangelidis said: “People are walking away from pure functional needs when it comes to product. They aspire to brands that have more of an emotional benefit, and I think that’s where the opportunity is.”
Innovating on display
However, although smartphone makers have been aggressively working to release new folding devices, the category remains a relatively niche area of the market.
Plus, folding phones can represent a big jump for the average consumer.
For one, they tend to be bulkier than non-folding phones because of the additional screen. And they’re not cheap, either. According to data from market research firm IDC, the average selling price of folding phones is nearly three times higher than that of normal smartphones — roughly $1,218 vs. $421 for non-folding phones.
While the foldable phone market grew 6.4% year-over-year to 19.3 million units, the category “represents only 1.6% of total global shipments,” according to Francisco Jeronimo, vice president EMEA for devices at IDC.
Nevertheless, this year at MWC, phone companies showed they’re getting better at developing folding phones that can better cater to everyday users.
For example, Oppo showed off its new Find N5 device this week. It only has two screens, but it’s a lot thinner than competing folding phones, such as Samsung’s Galaxy Fold 6.
Samsung currently holds the leading position in the global foldables segment. In 2024, it commanded a 32.9% share of the market. Huawei was close behind, with 23.1%, while Motorola was the third-biggest folding phone manufacturer with 17% market share.Â
And despite the punchy prices, these companies are betting consumers will be willing to pay for a more premium-grade experience.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports11 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway