Not so long ago cloud earnings were looking wobbly. Customers were slamming on the brakes, “bill shock” was mounting, FinOps was the word and workload “repatriation” was becoming a talking point in enterprises.
Steady as she goes: Generative AI has put a rocket back under the cloud, earnings from Alphabet (Google) and Microsoft showed late Tuesday.
Microsoft CEO Satya Nadella told analysts “we now have 53,000 Azure AI customers – over one-third are new to Azure over the past 12 months."
He added: "Over half of the Fortune 500 use Azure OpenAI today."
Breaking out details on a Q2, 2024 earnings call, CFO Amy Hood added “strong demand for our Microsoft cloud offerings, including AI services drove better-than-expected growth and large long-term Azure contracts.”
AI gave Azure revenues (up 30%) a six-point lift, the two said.
Pressed on precisely what was driving the growth (“open AI inferencing, GitHub Copilot, other Copilots, the Azure OpenAI service, third party LLMs running on Azure?”) CFO Hood said it was primarily inferencing workloads, with CEO Nadella adding in a Q&A that “Azure OpenAI and then OpenAI APIs on top of Azure would be the major drivers…”
See also: AI firm Anthropic slashed its AWS bill 40% by using Karpenter
Google Cloud (GCP)’s full year revenues of $33 billion were up 26%, its fiscal Q4 earnings showed – none too shabby for a segment that recently was loss-making and insignificant versus other parts of Google’s business.
CFO Ruth Porat told analysts: “We're very pleased with the momentum of GCP with an increasing contribution from AI” as she reported quarterly cloud revenues of $9.2 billion - that’s up $3 billion per quarter in just 18 months (tracking back against Q2, 2022 earnings for example.)
Google spends $183m daily on infrastructure
Alphabet reported an $11 billion CapEx bill for Q4 alone – that’s $183 million every working day over the past 12 weeks – “driven overwhelmingly by investment in our technical infrastructure,” said Porat.
This, she added on a conference call, “reflects our outlook for the extraordinary applications of AI to deliver for users, advertisers, developers, cloud enterprise customers and governments globally.”
It’s a figure nearly identical to Microsoft’s CapEx bill and Nadella emphasised that with generative AI “the core compute architecture itself changes, everything from power-density to… the network, the memory architecture, all of it” – he added that “AI is just redefining what the cloud looks like, both at the infrastructure level and the app model.”
Principal analyst at Forrester, Lee Sustar, said: “The notable gain in Microsoft Cloud revenues – which include both Azure and SaaS offerings like Microsoft 365 and Dynamics 365 – show that the AI boom is giving a significant boost to cloud providers' bottom line. Google Cloud has left behind years of quarterly losses and now accounts for 10% of Alphabet revenue as it uses the AI moment to reintroduce itself to enterprise IT leaders as a partner. All eyes will be on Amazon's upcoming earnings call on 1 February to see whether AWS has seen similar gains from AI.”
Some products in the spotlight
Alphabet’s executives focused on highlighting “thousands of product advances” including across its “Vertex AI” managed services platform, “Duet AI” agents and “AI Hypercomputer – “a groundbreaking supercomputing architecture that combines our powerful TPUs and GPUs, AI software and multi-slice and multi-host technology to provide performance and cost advantages for training and serving models.”
For developers building Generative AI applications, Vertex AI “helps customers… discover, customize, augment and deploy over 130 Gen AI models, including PaLM, Med-PaLM, Sec-PaLM and Gemini, as well as popular open source and partner models” Google’s executives said.
API requests on the platform have risen six-fold over the past six months, they said, citing enterprise AI customers like Moody’s, Spotify, and Pfizer.
Microsoft’s leaders highlighted that among other areas of AI momentum they are “seeing a Copilot ecosystem begin to emerge. ISVs like Atlassian, Mural, and Trello, as well as customers like Air India, Bayer, and Siemens have all built plug-ins for specific lines of business that extend Copilot's capabilities” – and emphasised that as well as cloud-based generative AI offerings, “in 2024, AI will become a first-class part of every PC.”
