Whopping billion-dollar profits are no longer enough for investors in tech companies. They want to see growth in cloud and AI. Microsoft met their expectations last quarter.
Tech companies are increasingly being valued on the stock market based on their success in the business with artificial intelligence and cloud services. Microsoft and Google parent Alphabet both reported a significant increase in sales and billions in profits for the last quarter.
Microsoft shares then jumped by almost four percent in after-hours trading on Tuesday – but Alphabet’s price fell by almost six percent. Microsoft reported strong growth in its cloud offerings, while Google’s cloud division missed analysts’ expectations.
Pact with Open AI
Microsoft continues to benefit from the boom in software with artificial intelligence, which is also driving demand for the group’s cloud services. Sales growth on the Azure cloud platform climbed to 29 percent in the last quarter from 26 percent in the previous quarter. Microsoft invested billions in a pact with the ChatGPT developer company Open AI and integrated its technologies across its own product range.
Overall, Microsoft sales increased by 13 percent to 56.5 billion dollars (around 53 billion euros) in the last quarter. Profit in the first quarter ended September rose by 27 percent to $22 billion. Google’s advertising business remains strong, but growth in its cloud business last quarter disappointed investors. The shares of Google parent Alphabet temporarily lost more than four percent in after-hours trading on Tuesday.
Google’s advertising business grew
Business at the group level at Alphabet also developed similarly strongly. Sales in the third quarter rose by eleven percent to around 76.7 billion dollars (72.4 billion euros). This exceeded analysts’ forecasts. Google’s advertising business grew by 9.4 percent to $59.65 billion.
In the cloud sector, revenues of a good $8.4 billion fell short of market expectations despite a jump of around 22 percent. And while the division generated an operating profit of $266 million, analysts on average had expected a significantly better profit of more than $430 million.
Meanwhile, Alphabet’s quarterly profit jumped by more than 40 percent year-on-year to almost $19.7 billion. A change in depreciation on servers and network technology also contributed around $760 million. Google also deferred tax payments in the second and third quarters. Now $10.5 billion in taxes have been paid, which will be recorded in the final quarter, said CFO Ruth Porat.