Google parent Alphabet (GOOG +0.30%) (GOOGL +0.25%), Amazon (AMZN +0.38%), and Microsoft (MSFT 0.95%) announce their quarterly results within days of each other. This helps investors compare how the rivals stack up against each other in the highly competitive cloud services market.
With all three companies providing quarterly updates over the last two weeks, we know how the "cloud wars" are going. To sum things up: Amazon leads, Microsoft disappoints, and Google surges.
By the numbers
Amazon reported its Q2 results on Aug. 1, 2024. The company entered the quarter as the undisputed king of cloud services, with 31% of the market. It still sits on the throne.
NASDAQ: AMZN
Key Data Points
In the second quarter, Amazon Web Services (AWS) revenue jumped 19% year over year to $26.3 billion. The segment generated operating income of $9.3 billion, up from $5.4 billion in the prior-year period. Amazon touted several new customers for AWS in Q2, including Discover Financial Services, Eli Lilly, and artificial intelligence (AI) start-up Perplexity.
Microsoft's Azure platform trails behind AWS in second place, with a market share of 25% earlier this year. Azure has been gaining ground, though, especially since Microsoft began integrating GPT-4 into its cloud services offerings in 2023.
NASDAQ: MSFT
Key Data Points
That trend continued in the latest quarter. Microsoft announced its fiscal 2024 fourth-quarter results on July 30, 2024. The tech giant reported Azure and other cloud services revenue soared 29% year over year (30% in constant currency).
While this growth was strong, it disappointed Wall Street. Analysts were expecting between 30% and 31% constant-currency revenue growth.
Google Cloud has been a distant third to AWS and Azure. In Q1, it held a market share of 11%. However, Google Cloud's growth has accelerated.
NASDAQ: GOOGL
Key Data Points
Alphabet reported its Q2 results on July 23, 2024. Google Cloud revenue surged roughly 29% year over year to a record-high $10.3 billion, with Google Cloud Platform services growing even more. The unit generated nearly $1.2 billion in operating profit in Q2, its first quarter for profits to top $1 billion.
More to the story
There's more to the story than Amazon leading, Microsoft disappointing, and Google surging. All three cloud titans had good news to report in their recent quarterly updates.
Amazon CEO Andy Jassy said in the company's Q2 earnings call that "three macro trends" continue to drive AWS growth. First, customers are once again focusing on new efforts after completing most of their cost optimization efforts. Second, Jassy said they're "modernizing their infrastructure and moving on-premise infrastructure to the cloud." Third, customers are leveraging artificial intelligence (AI).
Microsoft CFO Amy Hood acknowledged that the company faces AI capacity constraints. However, she said in the recent quarterly call that Azure's growth should accelerate in the second half of 2024 as AI capacity expands. The slightly disappointing growth in Q2 could be a blip that's quickly forgotten.
Alphabet CEO Sundar Pichai noted in his company's earnings call, "We are the only cloud provider to offer grounding with Google Search." He added, "Our AI-powered applications portfolio is helping us win new customers and drive upsell."
The Gemini large language models (LLMs) are key to this success. Pichai said that Gemini's support for 2 million tokens is "the longest context window of any large-scale foundation model to date" and "powers developer use cases that no other model can handle."
Winners all around
Wars typically result in one or more parties emerging as the victors and other parties ending up as the vanquished. However, I think with the cloud wars, there will be winners all around.
Amazon, Microsoft, and Alphabet should all have tremendous growth opportunities for years to come with their cloud businesses. All three stocks are great picks for long-term investors.
