AI takes center stage as Microsoft and Google earnings signal booming market

Microsoft and Google’s Q2 earnings reports highlight significant revenue and profit increases driven by their investments and advancements in AI technologies.

Big Tech giants Microsoft and Alphabet — the parent company of Google — unveiled their second-quarter earnings reports, showcasing impressive growth fueled by their strategic investments in artificial intelligence (AI). 

The recent earnings reports released on April 25 painted a clear picture that the AI market is still booming and has played a significant role in driving growth while boosting product and financial performance.

Microsoft’s momentum

Microsoft revealed a 17% increase in revenue, soaring to $61.9 billion, up from $52.9 billion in 2023. Additionally, the company saw a 20% surge in profits, reaching $21.9 billion, in both instances outperforming analysts’ forecasts. 

A significant contributor to this growth was the company’s robust integration of AI into its offerings, particularly evident in its cloud computing product Azure, which experienced a 31% growth.

Azure’s generative AI services played a pivotal role in driving this expansion, attracting 53,000 customers, a third of whom were new to the platform. In many of its recent deals, Microsoft has incorporated Azure usage for partnering companies.

One example from April 16 is a $1.5 billion deal with the Abu Dhabi-based AI tech holding company G42, which will have the company run its AI applications and services using Azure.

Amy Hood, the chief financial officer of Microsoft, commented on the uptick saying:

“Near-term AI demand is a bit higher than our available capacity.”

To meet this demand, the company is ramping up investments in data centers and other AI infrastructure, anticipating a “material” increase in capital expenditures. Microsoft’s cloud revenue stood at $35.1 billion for the quarter, resulting in a 23% growth year-over-year. 

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In January, Microsoft released the pro-version of its AI assistant Copilot, which included custom GPTs and office tools. The company has also been actively involved in investing in AI infrastructure around the world.

Its $13 billion deal with leading AI developer OpenAI was also mentioned as an important touchpoint for its success. 

Alphabet’s AI integrations

Similarly, Alphabet reported increased figures, with quarterly sales reaching $80.5 billion, a 15% increase from 2023, and profit surging by 36% to $23.7 billion. Again, both exceeded expectations.

Google’s integration of AI across its product ecosystem, from search engines to YouTube and Google Docs, was highlighted as a major driver of its success, along with its significant investment of $11.9 billion in AI research and development during the first three months of the year.

During the call, Alphabet’s CEO Sundar Pichai emphasized the company’s focus on leveraging AI to enhance the search experience while optimizing advertising revenue.

“We’re being measured in how we do this, focusing on areas where Gen AI can improve the search experience while also prioritizing traffic to websites and merchants.”

The company also announced its first-ever dividend of 20 cents per share to be paid in June. Additionally, it authorized a $70 billion share repurchase program, demonstrating confidence in its future.

Google has encountered challenges in the field of AI, such as the recent scandal involving its AI chatbot Gemini, which internet users criticized for presenting “woke” content and historically inaccurate imagery. As a result, the company issued an apology.

However, during the call, Pichai remained optimistic and expressed confidence in Google’s infrastructure, claiming it’s “the best for the AI era” due to years of investment.

The contrasting strategies between Microsoft, Google and Meta, formerly Facebook, are evident in their approaches to AI investment.

While Microsoft and Google have prioritized AI integration to drive growth, it contrasts with Meta, whose shares dropped 15% this week after it announced plans to spend almost $100 billion in 2024 to “invest aggressively” in its AI products.