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Amazon, Microsoft, and Alphabet are doubling down on AI for the cloud and it seems to be paying off

Aaron Mok   

Amazon, Microsoft, and Alphabet are doubling down on AI for the cloud — and it seems to be paying off
  • Amazon, Microsoft, and Alphabet's first-quarter earnings surpassed Wall Street's estimates.
  • Execs credit some of the gains to their AI efforts, which they say have helped boost cloud revenue.

Some of the biggest tech companies are spending big on artificial intelligence, which appears to be boding well for their cloud businesses.

Over the past two weeks, the major cloud providers Amazon, Microsoft, and Alphabet have reported quarterly earnings that exceeded Wall Street's expectations. That appears to be partly because their investments in AI have bolstered revenue in their cloud divisions, which are made up of data servers that customers use to power and train their AI models. Amazon, Microsoft, and Alphabet's shares also climbed after earnings were reported, evidence that doubling down on their AI strategies seems to be paying off.

"AI contributed to an acceleration of growth at those companies' cloud businesses," Gil Luria, an analyst at D.A. Davidson Companies, told Business Insider regarding Amazon, Microsoft, and Alphabet. "These three hyperscalers are seeing significant customer demand and are investing to meet that demand."

Take Amazon Web Services, the e-commerce giant's cloud segment, which reeled in net sales of $25 billion in its first quarter— a 17% increase compared with last year during the same period, according to Amazon's latest earnings.

Part of that growth, Amazon execs say, has come from its latest AI efforts. Last September, Amazon unveiled Bedrock, a suite of large language models that AWS customers can fine-tune for their business needs. Two months later, Amazon released Q, its generative-AI assistant, to select users; as of this week, it's generally available to AWS customers. On top of that, the tech giant has bet billions on Anthropic, the startup behind the AI chatbot Claude.

"We see considerable momentum on the AI front where we've accumulated a multibillion-dollar revenue run rate already," Amazon CEO Andy Jassy said on the company's latest investors call. AWS is now seeing a $100 billion annual run rate, according to its earnings.

AWS's competitors are in the same boat. Microsoft Cloud generated $35.1 billion in revenue — up 23% year over year — that CEO Satya Nadella credits partly to investments in AI tools such as Copilot. He said in the company's earnings release that Copilot was "orchestrating a new era of AI transformation" and was "driving business outcomes across every role and industry."

"The number of Azure AI customers continues to grow, and average spend continues to increase," Nadella said on Microsoft's first-quarter earnings call.

Similarly, Google Cloud reported sales of $9.6 billion — a 28% jump from last year during the same timeframe, according to Alphabet's latest earnings. Ruth Porat, Alphabet's chief financial officer, said on the most recent investor call that the numbers reflected "an increasing contribution from AI." After all, Google Cloud now comes with generative-AI services through Gemini, a family of large language models the search giant launched in December that competes with OpenAI's ChatGPT.

Still, critics may wonder whether these tech giants' gains will be short-lived, as some business leaders question whether the AI industry is overhyped. The research firm Capital Economics predicted in late April that the so-called AI-fueled stock-market bubble would burst in 2026 as higher interest rates and inflation weighed down equity valuations.

But Luria, the D.A. Davidson Companies analyst, said he didn't think that was likely to happen.

"While some stocks may be getting ahead of themselves, AI is very much real and not hype," he told BI.

The cloud providers seem to agree that AI isn't going anywhere. Amazon's Jassy detailed a plan in his annual letter to shareholders in April on how Amazon would make AI its next big focus. Google CEO Sundar Pichai said on Alphabet's latest earnings call that the company was well "positioned for the next wave of AI innovation and the opportunity ahead." Microsoft recently announced it was investing $1.7 billion into expanding cloud services and AI across Indonesia over the next four years.

While the biggest players in tech may still be at the beginning of their generative-AI journeys, some execs remain optimistic that the gains from AI will continue to be critical to their growth — at least for now.

"It's still relatively early days in generative AI and, more broadly, the cloud space, and we see sizable opportunity for growth," Jassy said.

Amazon, Microsoft, and Alphabet didn't immediately return requests for comment from BI before publication.

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