Sat. Jun 15th, 2024

Cloud services are turning tech companies around after last year’s slump. But the same can’t be said for Google’s parent company Alphabet.

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Big Tech is making a comeback after a difficult year as the sector’s heavyweights report their quarterly figures this week with investment in generative artificial intelligence (AI) paying off amid the cloud service race.

In 2022, tech companies saw massive layoffs and other cost-cutting measures after advertisers and consumers cut back on spending amid the unsettling economic climate.

But AI, and more specifically its use in cloud services, is helping to turn tech companies around.

E-commerce giant Amazon on Thursday reported profits almost tripled in the last quarter, rising to $9.9 billion (€9.3 billion) compared to a year ago, when it laid off 27,000 employees.

The strong results were largely down to online sales and Google Ads but also AI.

Amazon CEO Andy Jassy told analysts on the earnings call that AI represents an opportunity worth “tens of billions” in its cloud business, Amazon Web Services (AWS).

“Our generative AI business is growing very, very quickly,” said Jassy.

On Wednesday, AWS announced a major cloud development, saying the company will launch an independent cloud service in Europe.

Amazon Web Services European Sovereign Cloud will carve out a space for highly regulated companies and the public sector to store and keep data in the European Union.

It comes as the bloc gets tough on data being kept on non-European company servers and as it pushes for “digital sovereignty,” the idea that the EU should control its data and technology.

Meanwhile, Microsoft, which has invested $10 billion (€9.4 billion) in OpenAI, on Tuesday reported revenue growth of almost 13 per cent year-on-year to $56.5 billion (€53 billion).

The tech giant’s AI investments helped boost sales in the September quarter, especially in its Azure cloud programme.

“With copilots, we are making the age of AI real for people and businesses everywhere,” Satya Nadella, chairman and chief executive officer of Microsoft, said in a statement.

“We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers”.

Race to add generative AI to products

As for Google’s parent company Alphabet, the company posted quarterly sales of $76.69 billion (€72 billion), up 11 per cent from the same period a year ago.

But growth in Alphabet’s cloud sector was almost at a three-year low and cloud revenue was $20 million (€18 million) less than analysts expected. The market reacted to the cloud contrast with Microsoft on Wednesday with shares in Alphabet down 8.5 per cent.

Alphabet has been racing to add generative AI to more of its products and Alphabet’s cloud division has been trying to catch up with Microsoft’s Azure and Amazon Web Services (AWS).

One of the ways Alphabet could use AI to its most profitable advantage is in its most important business sector: advertising.

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Google is  working on building out its Search Generative Experience (SGE), which is a form of Google Search that uses generative AI to provide answers to users’ queries, which means the company

“[Ads] will continue to play an important role in this new Search experience. People are finding ads helpful here as they provide useful options to take action and connect with businesses,” CEO Sundar Pichai said during the earnings call.

“We’ll experiment with new formats native to SGE that use generative AI to create relevant, high-quality ads customized to every step of the Search journey”.

Meanwhile, Facebook parent company Meta also welcomed strong results on Wednesday with revenue rising by 23 per cent, largely due to its digital ads business.

CEO Mark Zuckerberg said the company would also be heavily investing in AI.

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“AI will be our biggest investment area in 2024, both in engineering and computer resources,” he said.

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