With Wall Street’s attention on cloud computing, Google Cloud emerged as the fastest-growing provider, showing a 35% year-over-year increase in third-quarter revenue to $11.35 billion. While Amazon Web Services (AWS) remains the leader in cloud, Google’s accelerated growth highlights its strides in artificial intelligence (AI) infrastructure. AWS, still more than double Google Cloud’s size, grew at 19%, reaching $27.45 billion. Microsoft’s Azure, the second-largest cloud provider, recorded 33% growth from last year.
For Google, this rapid cloud expansion marks a shift in its revenue model, historically reliant on digital advertising. Argus Research analysts, who recently recommended buying Alphabet stock, noted that Google Cloud’s growth is starting to diversify the company’s revenue streams. Once a cost-heavy division, Google Cloud achieved a 17% operating margin in the third quarter, following its first profitable year in 2022. Visible Alpha’s Melissa Otto noted that this profitability was a notable achievement, though sustainability remains uncertain.
AWS, traditionally Amazon’s primary profit engine, saw a strong 38% operating margin this quarter, bolstered by strategic cost-saving measures. The extension of server life by one year to six in 2024 also contributed to a 2% margin increase. These efficiencies are crucial as demand for cloud and AI services rises, often outstripping available capacity, particularly for advanced chips.
Microsoft, whose strategic investments in OpenAI have spurred growth in AI services, has also refined its Azure revenue reporting, now separating mobility, security, and data analytics sales from core cloud figures. Demand for Microsoft’s AI capabilities remains high, with CFO Amy Hood noting that capacity limitations have been a challenge. She anticipates improved Azure growth in early 2025 as Microsoft expands its AI infrastructure.
Amazon faces similar demand constraints, with CEO Andy Jassy indicating that chip shortages are a key limiting factor. AWS has responded by ramping up production of its in-house processors, such as Trainium 2, designed for model training. Google, meanwhile, has reached its sixth generation of custom tensor processing units (TPUs) for AI. CEO Sundar Pichai highlighted the TPU team’s progress, emphasizing Google’s commitment to a customized and optimized AI architecture.
Microsoft’s own AI chip, Maia, was introduced last year for internal use but isn’t yet available to customers. DA Davidson analysts expressed skepticism about Microsoft’s ability to compete directly against AWS and Google in this arena, maintaining a neutral outlook on Microsoft stock.
Oracle, typically ranked fourth among U.S. cloud providers, will report earnings in December. Its cloud infrastructure revenue grew 45% in the last quarter to $2.2 billion. Oracle’s recent partnerships with AWS, Google, and Microsoft to make its databases accessible on their platforms are expected to boost Oracle’s growth, according to Chairman Larry Ellison. This collaboration strategy could extend Oracle’s database business reach across the cloud market in the years ahead.
READ MORE: