In another significant development, revenue in Google’s cloud division continued to grow in the third quarter of the year by an astonishing 35% and hit $11.35 billion in revenue. This growth outperforms the bigger players Amazon Web Services (AWS) and Microsoft Azure, indicating that Google is carving a niche for itself in the highly competitive market of artificial intelligence (AI).
While AWS remains the market leader with a revenue of $27.45 billion, its growth has slowed to 19%, approximately half the pace of Google Cloud. Microsoft reported a 33% increase in Azure and related services, reflecting a robust demand for AI capabilities. This week, five out of six trillion-dollar tech companies disclosed their quarterly results, with the competition among cloud providers becoming increasingly pronounced.
Analysts at Argus Research noted that Google has historically been perceived as overly reliant on digital advertising. However, the rapid expansion of Google Cloud is diversifying its revenue streams, transforming what was once a financial drain into a profitable segment. The cloud division achieved a 17% operating margin in the third quarter, a significant turnaround after recording its first profit last year. Melissa Otto, head of technology research at Visible Alpha, highlighted this as a strong performance that exceeded expectations, though she expressed caution regarding the sustainability of such profitability.
In contrast, AWS has long been a key profit driver for Amazon, boasting an impressive operating margin of 38%. Amazon has strategically managed hiring and streamlined less popular services, which, alongside extending server lifespan from five to six years, has bolstered its profit margins. Likewise, it seems that OpenAI also extends help to Microsoft in regulating the demand for its AI services, since Finance Chief Amy Hood states that demand is surpassing its offerings at present. Given that Amazon and Google are following Amazon’s lead in developing their AI systems, the competition is expected to become fiercer. Amazon’s Chief Executive Officer Andy Jassy drew attention to the gap between demand and supply in regard to certain components, especially those designed to enhance the capabilities of AI systems. On the other hand, Google still has lots of work under its own belt, as new CEO Sundar Pichai continues to invest in the development of more advanced custom tensor processing units and is confident of progress in the AI infrastructure.
In view of this, stakeholders in the sector have adopted the wait-and-see approach as new events unfold, looking at the fact that Oracle is set to release its earnings in December against the backdrop of a massive boost in its cloud infrastructure revenue. With artificial intelligence still a major focus for many, the rivalry around who reigns most supreme in the cloud industry is sure to change the dynamics of the entire technology industry.
