Technology cloud report original.
Last week, Microsoft, Google, Meta and other foreign technology companies released their latest financial reports one after another. As giants related to fields such as artificial intelligence, cloud computing, and digital advertising, their every move will have an impact on the market, and at the same time attract the attention of many practitioners.
Among the three foreign cloud giants, Google Cloud's market share has long lagged behind AWS and Microsoft Smart Cloud. Even if it catches up, the opponent is too strong.
However, with the emergence of AIGC, the biggest variable this year, can the market status of various cloud vendors change?
On July 26, Alphabet, Google's parent company, released its financial report for the second quarter of 2023.
The financial report shows that Alphabet’s total revenue in the second quarter was US$74.604 billion, an increase of 7% compared with US$69.685 billion in the same period last year.
Alphabet's net profit in the second quarter was US$18.368 billion, an increase of 15% from US$16.002 billion in the same period last year. Both revenue and profit beat Wall Street expectations.
The better performance is mainly due to the rapid growth of Google Cloud and the rebound of the advertising business.
The financial report shows that Google’s advertising revenue has returned to growth. In the second quarter, it recorded revenue of US$58.143 billion, a year-on-year increase of 3.3%. The advertising revenue of the video platform YouTube was US$7.665 billion, a year-on-year increase of 4.4%.
In the second quarter, Google Cloud revenue was US$8.031 billion, an increase of approximately 28% year-on-year, and the market expected 24.8%. Google advertising and Google cloud revenue accounted for 77.93% and 10.76% of Alphabet's total revenue, respectively.
CEO Pichai and other Alphabet executives said that Alphabet's new artificial intelligence-based services and products are the biggest contributors to Google Cloud's growth momentum.
Alphabet's U.S. stock rose 6.5% after hours due to its bright earnings report.
Microsoft
On July 26, Microsoft also released its fourth-quarter and full-year results for fiscal year 2023.
According to Microsoft's financial report, the revenue for the second quarter was US$56.2 billion, an increase of 8%; earnings per share were US$2.69, an increase of 21% year-on-year.
The total revenue of Microsoft's intelligent cloud was 30.3 billion US dollars, an increase of 21%; in the second quarter, the revenue of Azure cloud business increased by 26%, and the revenue of intelligent cloud including Azure was 24 billion US dollars, an increase of 15%.
Although the revenue in the second quarter was higher than previous market expectations, it was not as good as the growth rate of the same period last year. Microsoft's efforts in cost and energy in the cloud service market have not received a premium return on Microsoft's revenue from AI.
Microsoft's performance growth rate supported by AI large model is lower than expected
Compared with the jubilant Google, Microsoft, which has been investing in AI models for more than half a year, seems a bit tepid.
In the past six months, "OpenAI uses Azure's intelligent cloud service" has always been considered the best advertisement for Microsoft's intelligent cloud. However, with the blessing of the AI big model in the past six months, the performance growth rate of Microsoft's intelligent cloud is not satisfactory.
According to the financial report, the revenue of Microsoft's intelligent cloud business increased by 15% to 3.2 billion US dollars. The growth rates of Q2 and Q3 in fiscal year 2023 are 18% and 16%, respectively, and the growth rate of Q4 in fiscal year 2022 is 20%.
Regarding the problem of slow growth, Microsoft CEO Satya Nadella said in the earnings conference call: "Affected by the epidemic, many cloud projects have been at a standstill in the past few quarters, and these projects are currently rushing. "
In the eyes of industry insiders, there may be many reasons why Microsoft's cloud business revenue is not as good as Google's.
First, Google has a strong advertising business, which is one of its main sources of revenue. The ad business has grown steadily over the past few years, providing Google with huge financial backing.
Microsoft's main source of income is software and services, especially business in the enterprise market, which is relatively less dependent on AI.
Secondly, there are still some challenges in the popularization and implementation of AI technology in commercial applications. Although Microsoft was one of the first companies to develop GPT, the value and benefits of AI technology in commercial applications still need further verification and realization.
This problem can be seen from the C-terminal heat decay of ChatGPT.
According to data from the Internet data company SimilarWeb, although the number of monthly active users of ChatGPT is growing rapidly, in the first half of 2023, the growth rate of the website’s browsing volume showed a monthly downward trend. By June, the number of browsing volumes experienced negative growth for the first time, with a drop of 9.7%. Browsing dwell time was shortened by 8.5%, and user churn rate increased to 20%.
Therefore, this financial report allows the market to re-examine what stage AI is in.
For Microsoft, it is clear that the large AI model has not entered a vertically in-depth revolutionary application stage, and the enthusiasm in the text stage will soon fade.
Although Google has not gained a leading advantage at the level of large language models, Google has always had very deep applications in vertical fields, especially in biomedicine.
For Wall Street investors, it is very rational and pragmatic, because after seeing several waves of AI, now they are more concerned about who can make AI land first and make money.
In other words, with the help of AI to optimize efficiency and earn more money, this is the focus of Wall Street investors' financial reports this time.
At present, Google has gone deeper and more pragmatically in the vertical application of AI.
Relatively speaking, Microsoft can only use AI large models to empower office software at present, and it is not obvious to drive performance growth. And in a short period of time, it is difficult for Microsoft to make achievements in the vertical industry application field of AI because of the lack of precipitation.
In general, Microsoft is a little too hasty in its corporate strategy and exerts too much force.
Entering the second quarter of this year, government agencies, regulators and consumer rights protection organizations around the world have launched waves of counterattacks against ChatGPT. After seeing that GPT’s major C-end applications were blocked, Microsoft adjusted its corporate strategy wisely. , to re-adjust the focus back to the B-end; at the same time, use the increased charges for the GPT commercial customer base to divest some non-core customer base and cloud business needs.
Affected by its own strategic adjustment, Microsoft's revenue, which seems to be in the limelight, is not as good as Google's muffled fortune.
The AI outlet has cooled down, but it is still worth looking forward to
It is worth noting that it is doubtful whether this trend will continue. After all, there is a lag in financial reports. The economic effects of Microsoft’s active adjustment strategy have not yet been fully released. One of the reasons is that many new products have not reflected the positive impact in this quarter’s financial reports.
As we all know, the "next big thing" of Google and Microsoft is to engage in AI-a business that will inevitably burn money.
Alphabet Chief Financial Officer Ruth Porat told analysts on the company's earnings call that "capital spending will continue to ramp up" through the remainder of 2023 and into 2024 to support the opportunity the company sees in artificial intelligence.
Microsoft CEO Nadella focused on the company's investment in artificial intelligence while releasing its earnings report. "Organizations need to ask not just how, but how to do it faster," he said in a statement. "We remain focused on leading the transformation of AI platforms."
Compared to Google, Microsoft's pace is more aggressive. Microsoft's capital expenditures rose 30% year over year in the second quarter to a record $8.9 billion.
Chief Financial Officer Amy Hood said Microsoft will increase the amount each quarter in the new fiscal year.
Microsoft's operating profit margin in the new fiscal year will remain at around 42%, when the contribution of artificial intelligence services will gradually be reflected.
In this regard, some people in the industry believe that the current trend of AI may have cooled down, but in the long run, AI still has great potential and development space, but it needs more time and practice to promote its commercialization process.
The market still has confidence in landing products such as AI large language models and AI assistants, and the development space of AI is still worth looking forward to.
In the future, these investments may still be long-term and continuous. They require continuous investment and patience to wait for returns. The numbers in the financial report are impressive, but it is only one of the indicators for evaluating a company. A successful cloud computing company needs patience + time + continuous investment.
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