Google and Microsoft weave tangled AI webs
MSFT•Alphabet and Microsoft reported rapid cloud growth, with Alphabet’s third-quarter cloud revenue roughly doubling year over year to $31 billion and Azure sales rising 48% to $33 billion. Their AI-lab partnerships also bring competition and spending pressures, including Alphabet’s nearly $8 billion in AI-related losses and $9 billion in negative free cash flow.
1. Cloud growth and AI ties
Alphabet and Microsoft are benefiting from cloud demand by AI labs even as they compete with some of those companies. Alphabet’s third-quarter cloud revenue was about $31 billion, roughly double a year earlier, while Microsoft Azure sales rose 48% to $33 billion for the quarter ended September 30.
2. Partnerships and competition
Anthropic buys Google’s custom chips and uses its cloud services, while listing Google as a competitor for customers, talent, computing capacity and strategic partnerships. Alphabet’s losses related largely to shared AI research and development rose to nearly $8 billion from $4.4 billion a year earlier, and it generated negative free cash flow of $9 billion. Microsoft generated $18 billion in free cash flow.
3. Microsoft and OpenAI
Microsoft and OpenAI revised their partnership agreement last year and loosened it further in April. OpenAI can work more easily with other partners, Microsoft is developing its own models, and revenue-sharing payments from OpenAI are subject to a total cap.
