The Artificial Intelligence (AI) race has been ongoing for a while now and companies have been striving for dominance. At the front, however, are tech giants Microsoft and Alphabet who filed their quarterly returns a few days ago

A Closer Look at Alphabet and Microsoft’s Q4 2023 Reports Shows AI, Cloud Are Major Drivers

The tech giants released their reports for Quarter 4 of the 2023 fiscal year that ended on June 30. AI has been the topic for the last few quarters, and everyone was eager to see who has been winning amidst the growing AI tension.

While both companies are working on different projects in the AI space, the finances are a clear indicator of how the companies are generally faring in the race.

First, the earning reports showed the massive investments that the companies had put into hardware. AI is a hardware-intensive technology that requires powerful processors to train and run models such as Google’s PaLM and OpenAI’s GPT-4.

The same was discussed during the Google earnings call where the company explained that it offers “AI supercomputer options with Google TPUs and advanced Nvidia GPUs, and recently launched new A3 AI supercomputers powered by Nvidia’s H100.”

Google, through its Chief Financial Officer, Ruth Porat, stated that “in Q2, the largest component [in its capital expenditure] was for servers, which included a meaningful increase in our investments in AI compute.”

“We expect elevated levels of investment in our technical infrastructure increasing through the back half of 2023 and continuing to grow in 2024. The primary driver is to support the opportunities we see in AI across Alphabet, including investments in GPUs and proprietary TPUs, as well as data center capacity,” she added.

The company also expects an increase in expenditure in data centers whose spending was low this quarter due to delays in setting up offices as well as other projects.

Microsoft also held a similar report with $10.7 billion worth of capital expenditure to sustain the company’s cloud support which included investment in AI infrastructure. The company equally predicted that its capital expenditures would increase sequentially each quarter through the year as it scales to meet demand signals.

Notably, this expenditure included the company’s investment in order to enhance capacity for both Azure workloads linked to AI and demand unrelated to AI. Therefore, not the entire sum is dedicated to AI projects.

Aside from expenditure, the company’s demand for products and services is a larger indicator of how well it is doing in its AI endeavors. Google reported that more than 750,000 Workspace users have access to its new AI features which are currently in preview.

The company also stated that it was experiencing significant demand for more than 80 of its AI models. These include third-party models as well as popular open source in Google’s Vertex, search, and conversational AI platforms. In total, the number of customers had grown by more than 15x from April to June.

In addition to individual users, the tech company also stated that more than 70% of gen AI unicorns including Cohere, Jasper, and Typeface are Google Cloud customers. This means that the company is seeing substantial returns from these companies which use cloud services to facilitate their AI models.

Microsoft, on the other hand, registered a 150% increase in Azure customers, closing the year at 18,000 users. “Nearly 90% of GitHub Copilot sign-ups are self-service, indicating strong organic interest and pull-through. More than 27,000 organizations, up 2x quarter over quarter, have chosen GitHub Copilot for Business to increase the productivity of their developers,” the company said, explaining its CoPilot’s demand.

Microsoft also said that Bing users had engaged in more than 1 billion chats to date. So far, the browser’s chatbot has also generated more than 750 million images with Bing Image Creator.

In terms of revenue, Google Cloud’s revenue for the quarter reached $8.03bn, compared with an expected $7.83bn. This growth is particularly notable considering the company’s Cloud division only became profitable in Q1 of this year.

Generally, Alphabet reported better-than-expected growth in revenue. The company reported $74.6bn for the last quarter, coming in above analysts’ estimates of $72.75bn in revenue. Notably, this is contributed to by other strongholds including advertising where Google earns the highest revenue.

Its rival Microsoft recorded about a 27% growth in revenue from its Azure services. However, this was a decline considering the cloud division had seen a 31% growth in the previous quarter.

In total, the company generated $56.2 billion in revenue from all its sales and products. This was higher than the $55 billion that analysts had expected the company would generate.

The Battle for AI Dominance Continues

When the AI race started to heat up, Microsoft quickly partnered with OpenAI, which was at the center of AI even at that time, by investing $10 billion into the startup. By doing so, the tech company got the first mover advantage, tapping into the startup’s GPT models which were already powering the famous ChatGPT chatbot.

Microsoft swiftly integrated the large language models into Bing, which had been doing poorly for years. This shook Google’s footing in the search industry, a sector the company has been dominating for years.

The rest of Microsoft’s product suite was soon also powered by GPT’s capabilities offering new features such as automatically taking notes during meetings on Microsoft Teams.

On the other hand, Alphabet, Google’s Parent Company, was taken by surprise by the rise of AI. As such, it took a while to find its bearing and has spent quite some time attempting to catch up with other companies. As such, the company announced its first significant AI applications during the Google I/O in May.

Judging from the revenue reports, the companies are seemingly still attempting to establish their ground in the young technology.. As such, it is yet to be determined who will dominate the AI industry.

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