Major American tech firms, including Microsoft and Alphabet, have recently unveiled their financial reports, with top executives acknowledging the positive impact of generative AI on driving cloud service growth. However, analysts caution that the demand for AI includes significant data center construction and operational costs, leading the market to maintain a certain level of skepticism regarding the profitability of new technologies.
Notably, the performance of Amazon's leading cloud service, AWS, has been expected to be the point of attention in the company's latest financial report, set to be released on February 1.
According to Reuters, Microsoft CEO Satya Nadella stated that the team has transitioned from discussing AI progress to widespread adoption, with Azure AI attracting 53,000 customers, approximately one-third of which joined in the past year.
Microsoft's Q2FY24 financial report, covering the period up to December 31, 2023, revealed quarterly revenue of US$62 billion, an 18% year-on-year increase. Intelligent cloud revenue reached US$25.9 billion, with Azure-related cloud service revenue growing by 30%.
Alphabet's financial report showed quarterly revenue of US$86.3 billion, a 13% year-on-year increase. Google's search engine and related businesses contributed US$48 billion, and YouTube ads and Google Cloud each garnered US$9.2 billion, respectively. It is worth noting that Google Cloud turned profitable in Q1 2023, achieving profitability for the full year.
The recyclable cost of data center expansion
Despite Microsoft and Alphabet's strong performance, both companies saw a slight single-digit percentage decline in their stock prices after the financial reports were released. This suggests that the market retains some caution toward these tech giants.
According to Reuters, Microsoft's alliance with OpenAI has garnered attention from investors. Reportedly, the performance of the company's Azure and Office businesses is being closely monitored by the stakeholders to determine whether Microsoft's substantial investments in data centers would pay off.
In November 2023, Microsoft released two self-developed chips, including an AI chip designed for specialized server architectures. The new chips are set to be deployed in Microsoft's data centers in early 2024. Insiders have indicated that traditional data center technologies are no longer sufficient.
Google has been developing its proprietary chips for years and announced its latest Gemini series models in December 2023, noting the deployment of several data center TPUs for training. However, it recently announced plans to build a new data center in the UK, with an expected investment of US$1 billion, indicating a need for expansion despite Google's relatively robust and existing infrastructure.
The market capitalization of the giants
Microsoft recently surpassed Apple to become the world's most valuable company. Stepping out of the shadows of its struggling years, today's Microsoft is evidently in a different league. Some analysts argue that Microsoft's overtaking of Apple signifies an increased importance of software innovation in today's tech landscape.
An expert who previously worked for Microsoft and other US companies observed that whenever a new technology emerges out of the fold, it can be judged based on whether it enhances productivity or personal convenience. In this context, Microsoft and Apple represent these two distinct categories of technology. Given the recent surge in generative AI primarily targeting office productivity, it's not surprising to see Microsoft's growth outpacing Apple's.
Moreover, the expert pointed out the diverse portfolio Microsoft holds, ranging from the Office software suite, the cloud services, the GitHub code platform, and gaming-related businesses, which offers the makers of Windows a better starting point in the short term (within three years) to take advantage of the surge of interest in GenAI. Other commercial software companies such as Salesforce and SAP are also following suit to deploy or develop generative AI applications.
The expert also believes that the key to Apple regaining its market advantage hinges on whether a game-changing application emerges on the device side in the future, as the company business still primarily centers on developing personal mobile devices. Market capitalization reflects investors' expectations for a company's performance over the next 2-3 years, leaving room for many fluctuations moving forward.
