Let’s take a look at the cloud providers’ earnings calls, as Microsoft, Google, Amazon, and Apple all released data.
Microsoft reported a strong fiscal first quarter for 2025, beating earnings and revenue expectations with earnings per share of $3.30 against an expected $3.10, and revenue of $65.59 billion versus the anticipated $64.51 billion. Microsoft reported a 33% growth in Azure revenue, driven by artificial intelligence services, while total revenue from its intelligent cloud segment reached $24.09 billion. Microsoft is facing cloud capacity constraints. While cloud revenues rose by 22% year over year to nearly $39 billion, the growth has slowed slightly compared to the previous year. Microsoft is investing tens of billions of dollars to enhance data center capacity, with quarterly capital investments nearly doubling to $20 billion. The demand for AI is driving a data center building boom, with Microsoft planning to further increase capital spending in response to rising customer consumption. Despite the growth, their $13 billion investment in OpenAI is projected to result in approximately $1.5 billion in losses this quarter.
Alphabet, the parent company of Google, reported a significant earnings beat for the third quarter of 2024, exceeding analysts’ expectations. Google Cloud reported a significant growth surge, with a third-quarter growth rate of 35%, up from 29% in the previous quarter. CEO Sundar Pichai attributed this acceleration partly to the company’s advancements in artificial intelligence, which he stated are attracting new customers and increasing usage among existing ones. This performance bolstered Alphabet’s overall revenue growth to 15%. Pichai revealed that over 25 percent of the company’s new code is now generated by artificial intelligence. Pichai emphasized that while AI aids in boosting productivity and efficiency, human programmers still oversee the generated code.
Amazon reported better-than-expected earnings for the third quarter of 2024, with earnings of $1.43 per share, surpassing the $1.14 expected by LSEG, and revenue of $158.88 billion, exceeding the anticipated $157.2 billion. Despite slightly missing expectations for Amazon Web Services revenue at $27.4 billion, the segment grew 19% year-over-year. The advertising business also showed strong growth, expanding 19% to $14.3 billion. CEO Andy Jassy announced plans for approximately $75 billion in capital expenditures for 2024, primarily focused on technology infrastructure and generative AI.
Apple’s fiscal fourth-quarter earnings report for 2024 revealed a mixed performance, with revenue hitting $94.93 billion, surpassing estimates of $94.58 billion. The iPhone generated $46.22 billion in revenue, exceeding expectations, while services revenue came in at nearly $25 billion but fell short of predictions. CEO Tim Cook noted strong iPhone 15 sales despite the challenges, stating they outperformed the previous model. Looking ahead, Apple anticipates low to mid-single-digit sales growth for the December quarter. In a positive sign for user adoption, Cook stated that users are adopting iOS 18.1 at twice the rate of iOS 17.1 this time last year.
Why do we care?
Tech had a fantastic quarter. Demand for cloud is very robust.
The investment push in AI is unlikely to produce immediate returns, a trend that could impact IT service providers closely aligned with these tech giants. They should prepare for potential budget recalibrations among clients, particularly in sectors where tech investments may have previously relied on predictable cloud costs. Cost-cutting measures could eventually impact cloud providers’ offerings, pushing clients toward a optimized, selective cloud consumption model rather than blanket adoption, and we’ve seen customers lean into cost optimization.
