Key Points
- Google Cloud grew 35% in Q3, outpacing Amazon and Microsoft in growth rate. AWS earned $27.45 billion, over twice Google’s cloud revenue.
- Microsoft Azure revenue reports now separate other software sales, reflecting focused cloud growth.
- Amazon, Google, and Microsoft are developing proprietary AI chips to address demand and optimize performance.
- Oracle saw a 45% jump in cloud infrastructure revenue, boosted by partnerships with larger cloud providers.
This week, cloud computing was in the spotlight on Wall Street. Google’s cloud growth outpaced its rivals, signaling promising artificial intelligence (AI) traction and capturing investor interest. Google Cloud, which spans infrastructure services and software subscriptions, grew by 35% year-over-year in the third quarter, reaching $11.35 billion. This marked an acceleration from the previous quarter’s 29% growth.
Amazon Web Services (AWS), still the cloud market leader, saw revenue increase by 19% to $27.45 billion. Although AWS’s revenue is more than twice that of Google Cloud, its growth is only about half as fast. Microsoft’s cloud arm, Azure, grew by 33%, just behind Google’s growth rate.
The results reflect the growing competition among tech giants Amazon, Alphabet (Google’s parent), and Microsoft. These companies often report earnings around the same time, providing a snapshot of “cloud wars” developments. Analysts have highlighted Google’s diversification beyond digital advertising through its cloud business.
Google’s cloud division made a profit for the first time last year and recorded a 17% operating margin in the third quarter, exceeding Wall Street’s expectations. However, Visible Alpha’s technology analyst Melissa Otto remarked that Google’s profitability in cloud operations may not be sustainable in the long term. Conversely, Amazon has long depended on AWS as a major profit driver, recording an impressive 38% operating margin in the third quarter. AWS has also benefitted from extending its server lifespan from five to six years, contributing to a 2% margin boost.
Microsoft provided investors precise Azure revenue reporting, separating its mobility, security, and Power BI analytics sales. The company, a lead investor in OpenAI, benefits from the growing demand for AI services. However, CFO Amy Hood acknowledged that current AI capacity is limited, a constraint expected to ease by mid-2025 with new capital investments.
Amazon faces similar capacity constraints, primarily with chip supply, noted CEO Andy Jassy. To address this, Amazon uses a mix of Nvidia GPUs and its custom processors like the Trainium 2 chip, which is gaining customer interest. Google, meanwhile, has advanced to the sixth generation of its tensor processing units (TPUs) for AI, which CEO Sundar Pichai believes will optimize their AI architecture. Microsoft also recently introduced an AI chip, Maia, to power its services, though it hasn’t been made available for public use.
Oracle, the fourth-largest U.S. cloud provider, plans to report in December. Last quarter, Oracle reported a 45% rise in cloud infrastructure revenue, supported by partnerships with its larger competitors, which Oracle Chairman Larry Ellison said will fuel database growth.
