- 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 help boost cloud revenue.
- These cloud providers see AI as a key growth opportunity despite concerns around hype.
Some of the biggest tech companies are spending big on AI, which appears to be boding well for their cloud businesses.
Over the last two weeks, major cloud providers Amazon, Microsoft, and Alphabet have reported quarterly earnings that exceeded Wall Street's expectations. That's partly because their investments in AI appeared to 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," D.A. Davidson Companies analyst Gil Luria 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 to 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, which is now generally available to AWS customers as of this week. 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, per its earnings.
AWS' 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 into AI tools like Microsoft Copilot. AI, he said in the company's earnings release, is "orchestrating a new era of AI transformation" and is "driving business outcomes across every role and industry."
"The number of Azure AI customers continues to grow, and average spend continues to increase," CEO 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 reflect "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 2023 that competes with OpenAI's ChatGPT.
Still, critics may wonder if these tech giants' gains may be short-lived, as some business leaders question whether the AI industry is overhyped. Research firm Capital Economics predicted in late April that the so-called AI-fueled stock market bubble will burst in 2026, which the company claims could weigh down equity valuations.
But Luria, the D.A. Davidson Companies analyst, doesn't think that's 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 is not going anywhere. CEO Jassy detailed a plan in his annual letter to shareholders in April on how Amazon will make AI its next big focus. Google CEO Sundar Pichai said on Alphabet's latest earnings call that the company is well "positioned for the next wave of AI innovation and the opportunity ahead." Microsoft recently announced it will invest $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," Amazon CEO Jassy said.
Amazon, Microsoft, and Alphabet didn't immediately return a request for comment from Business Insider before publication.
