Google parent Alphabet’s impressive third-quarter results, particularly in its cloud division, suggest a robust market for AI-enhanced cloud services that could benefit industry leaders Amazon and Microsoft. Google Cloud’s revenue surged by 35% in the July-September quarter—the fastest pace of growth in eight quarters—outpacing analysts’ expectations of a 29% rise, according to LSEG data.
Analysts highlighted that Google’s cloud growth may set the tone for its competitors. “When you see Microsoft and Amazon report this week, Google is probably going to have the most impressive cloud growth numbers out there. It’s probably going to be the best of the three this quarter,” said Angelo Zino, senior equity analyst at CFRA Research.
Despite being smaller than Amazon Web Services and Microsoft’s Azure, Google Cloud has been gaining traction due to its focus on AI capabilities. The integration of powerful Tensor Processing Units and enhanced security features has helped differentiate Google’s offerings. “The continued growth of the Google Cloud business this quarter clearly reflects the company’s capabilities in AI being recognized as a key driver in organizations choosing to work with Google,” noted Bob O’Donnell, president and chief analyst at TECHnalysis Research.
Investments in AI are paying off for Google, with increased customer spending on services like the Vertex AI platform, which allows businesses to utilize Google’s models or develop custom ones. Gil Luria, head of technology research at D.A. Davidson, emphasized, “The Google Cloud business significantly exceeded expectations with meaningful acceleration and margin expansion. This has been the main area where Google has been able to translate its AI capabilities into revenue growth.”
Google’s strong performance indicates a growing demand for AI-powered cloud services, a trend that bodes well for Amazon and Microsoft as they prepare to report their earnings. The cloud market’s expansion suggests that these tech giants may also benefit from the increasing integration of AI into cloud computing solutions.