Microsoft's-Cloud

Alphabet's cloud shares drop amid Microsoft's AI dominance

Alphabet's shares experienced a significant drop as its cloud unit's growth slowed to a nearly three-year low, in contrast to Microsoft which is effectively leveraging AI to garner profit. On Wednesday, Alphabet (NASDAQ: GOOGL) shares fell by 9.6%, while Microsoft (NASDAQ: MSFT) saw a healthy 2.8% gain. Investors are concerned about the plight of Alphabet that they may fall behind in the competitive cloud-computing market.

The growth of Microsoft's Azure platform was fueled by businesses investing in cloud services to support artificial intelligence features. In contrast, Alphabet’s smaller clients have posed challenges for the company’s cloud unit.

Microsoft's stock was trading at 28.5 times its 12-month forward earnings estimates, whereas Alphabet's Google, traded at 24.93 times its earnings estimates. According to experts, this occurred because of their client choice. Microsoft concentrated on its core business clients while Google turned to startups.

It is the demand for artificial intelligence which resulted in Microsoft's growth while Google's larger clients demonstrated similar demand. According to Morningstar analyst Ali Mogharabi, Google's focus on startup clients has dampened its growth.

Google Cloud provides AI capabilities through its Vertex platform and aims to shift its focus from research to product releases in the competitive generative AI market. Google plans to release a series of AI models, including "Gemini," next year.

According to a portfolio manager at Parnassus Investments, Krishna Chintalapalli, Microsoft leverages its established software relationships for advantages, while Google is more focused in competing with them.

Strong AI adoption significantly boosted Microsoft's cloud business in the September quarter, with about 40% of Fortune 500 companies using its "Copilot" AI service. Alphabet has also integrated AI into products like its Pixel phones and tested incorporating generative AI into its search engine. Many analysts are optimistic about Alphabet's core search business but they expect that the cloud businesses will not perform as strongly.

AI is expected to become a more significant growth driver for Alphabet in 2023 with the launch of "Gemini”. CEO Sundar Pichai is optimistic about the early results of Gemini.