Microsoft jumps while Google owner Alphabet slips as Wall Street zeroes in on the tech giants' AI efforts

• Microsoft shares climbed 4% in premarket trading after a strong quarterly earnings report.
• Alphabet slipped 7% as revenue for its cloud division fell short of Wall Street's expectations.

Microsoft stock edged higher in premarket trading Wednesday, while Google owner Alphabet fell as investors zeroed in on their cloud revenues.

Microsoft was up nearly 4%, putting its market capitalization on course to surge nearly $100 billion, per Insider calculations.

Meanwhile, Alphabet was down almost 7%, which would erase just under $120 billion of value if the decline holds until the closing bell.

Microsoft and Alphabet posted strong third-quarter reports on Tuesday, with both companies beating consensus earnings-per-share and revenue expectations, per Refinitiv.

Revenues for their cloud businesses drove the mega-cap "Magnificent Seven" stocks in different directions, however.

Microsoft's Intelligent Cloud unit posted sales of $24.3 billion for the third quarter, beating Wall Street's $23.5 billion target, according to data from the London Stock Exchange Group. The Redmond, WA-based company's Azure cloud-computing platform also generated better-than-expected revenue growth of 29%.

Those numbers are a sign that Microsoft's big move into AI is already paying dividends, according to analysts.

"Fewer people are splashing the cash on hardware and the software that goes with it, which is a classic symptom of the economic wheel losing steam," said Hargreaves Lansdown's Sophie Lund-Yates. "Microsoft has cloud to pick up the slack."

In contrast, Google Cloud revenues rose 23% to $8.4 billion, $200 million short of analysts' forecasts and the slowest growth since the first quarter of 2021.

"If you want the stock to keep going higher, you've got to have cloud become more profitable," Portfolio Wealth Advisors' Lee Munson told CNBC Tuesday. "It's a third-rate cloud platform – we need to see it make money."

Microsoft and Alphabet have been locked in an AI arms race for much of this year, with the Google owner working to scale up its Bard AI bot in a bid to rival the Microsoft-backed tool ChatGPT.

The share prices of both companies have surged this year due to rising interest in AI, with Alphabet jumping 57% and Microsoft up 38%, leaving them worth $1.76 trillion and $2.46 trillion respectively.