Expectations exceeded: Cloud businesses are driving Alphabet and Microsoft

exceeded expectations
Alphabet and Microsoft are driving cloud businesses

04/26/2023, 00:01

Strong growth in the storage capacity business and solid advertising revenues have pushed tech giants Microsoft and Alphabet to better-than-projected results. The Google parent now wants to pay out billions to shareholders through a buyback program.

Sustained high demand for cloud offerings has resulted in better-than-expected quarterly results for Microsoft and Alphabet. The Google parent also announced a $70 billion share buyback program. Supported by 27 percent growth in the Azure cloud division, Microsoft increased group sales by seven percent to almost 53 billion dollars. Alphabet’s Google Cloud division grew at a rate similar to Microsoft’s Azure. Group sales therefore grew surprisingly significantly to almost 70 billion dollars.

Microsoft also reported that revenue from online advertising on the LinkedIn careers network and from the sale of Office software developed better than expected. At the same time, the important business with the Windows operating system, which is heavily dependent on global PC sales, shrank less than feared. The bottom line is that the group earned $18.3 billion, around nine percent more than a year ago. This put earnings at $2.45 per share. Analysts had forecast $2.23 per share.

Alphabet’s first-quarter earnings also beat expectations at $1.17 per share. However, with a total of a good 15 billion dollars, significantly less remained than a year ago. At the same time, the Internet giant is pursuing an austerity course. In January, he announced that 12,000 of the approximately 187,000 jobs would be cut.

Investors eager for AI news

The numbers of the two groups were well received by investors. The shares rose in the after-hours US business at times by around three percent. In addition to the business figures, stockbrokers were also eagerly awaiting news about the investment plans in artificial intelligence (AI). They expect additional business from this technology, which has been dominating the headlines since the launch of the chatbot ChatGPT in November 2022. “But that’s a double-edged sword because companies are under pressure to improve cash inflows in a weakening economy,” said analyst Thiago Kapulskis of Bank Itau BBA. At the same time, investors expected tech companies to be at the forefront of AI development.

According to a media report, Microsoft is developing its own special chip for applications such as ChatGPT from its OpenAI holding. So far, this business has been dominated by the US company Nvidia, which is known for its graphics card chips. Alphabet is merging its AI development divisions Google Brain and DeepMind. Both groups have already equipped several of their products with AI functions.