Google shares plunge as cloud services revenue falls short

Google shares plunge as cloud services revenue falls short of expectations – while competitor Microsoft sees huge boost as its Azure grabs a bigger share of the market

  • Google parent Alphabet and Microsoft both reported earnings on Tuesday
  • Alphabet shares sank as company’s cloud revenue missed expectations
  • Microsoft’s report sent stock rising at it beat expectations, however 

Shares of Google-parent Alphabet are slumping after the company reported disappointing cloud revenue, while competitor Microsoft’s stock popped as it beat expectations.

Alphabet stock dropped 6 percent in extended trading after the company reported results after the bell on Tuesday, while Microsoft shares jumped as much as 5 percent.

Google’s parent company reported overall revenue of $76.69 billion, up 11 percent and returning to double digits for the first time in a year — but the results were overshadowed by cloud revenue growth that missed analyst expectations.

Microsoft revenue rose 13 percent to $56.5 billion in the quarter ended September 30, driven particularly by strength in its cloud computing and PC businesses.

Revenue from Microsoft’s Intelligent Cloud unit, which houses the Azure cloud-computing platform, grew to $24.3 billion, beating analysts’ estimate of $23.49 billion, LSEG data showed. 

Shares of Google-parent Alphabet are slumping after the company reported disappointing cloud revenue

Alphabet stock dropped 6 percent in extended trading after the company reported results after the bell on Tuesday

Azure revenue rose 29 percent, higher than a 26.2 percent growth estimate from market research firm Visible Alpha. 

The company does not break out the absolute revenue figure for Azure, the part of Microsoft’s business best situated to capitalize on booming interest in artificial intelligence.

Wall Street is looking at how generative AI cloud services may benefit Microsoft, which secured an early lead with investments in startup OpenAI, owner of the popular ChatGPT service.

Many of those AI services are not yet widely available. Brett Iversen, Microsoft’s vice president for investor relations, said much of the sales growth reported on Tuesday came from customers rekindling their use of Microsoft’s cloud in anticipation of using those services.

‘What AI is doing … is opening up either new conversations or extending existing conversations or getting us back in touch with customers that we maybe weren’t doing as much with,’ Iverson told Reuters.

Microsoft revenue rose 13 percent to $56.5 billion in the quarter ended September 30, driven particularly by strength in its cloud computing and PC businesses

Microsoft shares jumped as much as 5 percent after hours

By comparison, Google-parent Alphabet’s cloud division missed estimates for third-quarter revenue on Tuesday as an uncertain economy and high interest rates led its customers to trim their budgets.

Microsoft said on Tuesday that its fiscal first-quarter profit was $2.99 per share, above analyst estimates of $2.65 per share, according to LSEG data.

‘There are some weaker areas; search advertising revenues, for one, is growing slower than most segments,’ said Jeremy Goldman of research firm Insider Intelligence.

Microsoft is weaving AI into its own products, such as the $30-a-month ‘Copilot’ for its Microsoft 365 service that can summarize a day’s worth of emails into a quick update. 

While the tool is being shown only to a small number of pilot customers until it becomes available next month, it requires businesses to make a number of upgrades to their Microsoft-based systems in order to use Copilot. 

Analysts say this could generate sales for the Redmond, Washington, company ahead of Copilot’s wide release.

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