Recent earnings calls from tech giants Google, Amazon, and Microsoft showed that AI takes time and money—and investors lately seem concerned with both, even as the vendors all reported cloud-revenue growth, year over year.
The quarterly revenue announcements revealed the ups, downs, and uncertainties of an emerging technology that may not be emerging as fast investors would like.
“You may be seeing profitability in these cloud businesses, but I feel like right now, if you were to just narrow it down on AI, they’re probably spending more than they’re generating revenue. And investors want to see that flip the other way,” Dave McCarthy, research vice president for cloud and edge services and worldwide infrastructure research, at market-intelligence firm IDC told IT Brew.
First, the revenue:
- Microsoft’s Cloud revenue increased by 21%, YoY, with a quarterly revenue of $36.8 billion.
- Google Cloud reached $10.3 billion (a 29% increase, annually), which included “an increasing contribution from AI,” Google’s CFO Ruth Porat said on the company’s recent call.
- Amazon’s AWS sales increased by 19% YoY, resulting in $26.3 billion.
The cloud services of Google, Amazon, and Microsoft help customers with some combination of three categories of AI deployments, McCarthy said: infrastructure (compute, storage, networking); developer tools; and software-as-a-service applications. The cloud providers get the physical gear, place it into big data centers, and then, through software, allow customers to use it.
Now that spending
- On a July 30 earnings call, Microsoft CFO Amy Hood announced $19 billion in total expenditures for the quarter and said “cloud and AI-related spend represents nearly all of our total capital expenditures.“Roughly half,” Hood mentioned on the call, represents infrastructure needs and data center building to support monetization “over the next 15 years and beyond.”
- Alphabet (Google’s parent company) spent 13.19 billion in CapEx for components like servers and data centers—its spending at the same time last year, according to aggregator DiscoverCI: 6.89 billion. On the earnings call, Porat said the company expects “quarterly CapEx throughout the year to be roughly at or above the Q1 CapEx of $12 billion.”
- One analyst on Alphabet’s July 23 call posed an AI reality check to CEO Sundar Pichai: hyperscalers moving from an “underbuilt” situation last year, to better meeting the capacity demands today, “to potentially being overbuilt next year if these capex growth rates keep up.” “When we go through a curve like this, the risk of under-investing is dramatically greater than the risk of over-investing for us here,” Pichai said in response.
Top insights for IT pros
From cybersecurity and big data to cloud computing, IT Brew covers the latest trends shaping business tech in our 4x weekly newsletter, virtual events with industry experts, and digital guides.
Amazon’s stock fell more than 8% following its earnings announcement; Microsoft’s stock dipped 2.8% in after-hours trading, after “narrowly missed expectations” in cloud growth; and Alphabet’s valuation decreased in after-hours trading following the company’s release.
“There’s this concern that things are moving so fast, that it’s getting outdated, before it even gets to the point where it can be adopted, which means that you have to spend more money on it. I think there’s a concern [about] how money will need to be invested? Like, it seems like a bottomless pit right now,” McCarthy said.