Alphabet, the parent company of Google, has faced headwinds in its cloud business as it reported its slowest growth in at least 11 quarters, contrasting with the robust performance of rival Microsoft’s cloud unit.
The Mountain View, California-based the tech giant’s third-quarter results revealed that concerns over a slowing global economy have led companies to scale back spending on cloud-related services, including costly AI tools.
Google Cloud’s third-quarter revenue increased by 22.5 percent to $8.41 billion, marking the slowest growth since at least the first quarter of 2021. In comparison, Microsoft’s Intelligent Cloud unit, housing its Azure cloud computing platform, saw revenue surge to $24.3 billion during the same period.
Despite the slowdown, Alphabet reported a net profit of $19.69 billion for the July-September period, up from $13.91 billion the previous year. The company’s total revenue for the third quarter amounted to $76.69 billion.
Sundar Pichai, CEO of Google, in its earnings report, said: “I’m pleased with our financial results and our product momentum this quarter, with AIdriven innovations across Search, YouTube, Cloud, our Pixel devices and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”
Ruth Porat, Alphabet’s finance chief, attributed the sluggish cloud growth to customer optimization efforts, providing no further details during a conference call on Tuesday.
Additionally, Google’s advertising segment remained a significant contributor to revenue, with ad revenue reaching $59.65 billion in the third quarter, compared to $54.48 billion the previous year. Notably, YouTube ads reported revenue of $7.95 billion, up from $7.07 billion in the same period last year.
To support its cloud and AI ambitions, Alphabet disclosed that it spent $8.06 billion on capital expenses in the third quarter, primarily directed towards investments in technical infrastructure. Servers and data centers were the two largest components of this expenditure due to a significant increase in AI computing investments.
It’s important to note that earlier this year, Alphabet implemented significant workforce reductions, cutting over 12,000 employees, or approximately 6 percent of its global workforce. The layoffs were part of an effort to adapt to a “different economic reality.” In September, the company also downsized its global recruiting team. Alphabet incurred severance and related charges of $2.1 billion for the first nine months of the year as a result of these workforce changes.
Alphabet’s cloud business will continue to face challenges in a rapidly evolving and competitive market, and it remains to be seen how the company will adapt to ensure future growth and success.
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