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Microsoft Cloud Sales up Due to AI As AWS, Google Cloud Play Catch-up - Business Insider

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Source: https://www.businessinsider.com/microsoft-amazon-google-ai-aws-artificial-intelligence-cloud-sales-2023-10

Image of Microsoft Cloud Sales up Due to AI As AWS, Google Cloud Play Catch-up - Business Insider

Microsoft's cloud unit reported 3% of its sales growth came from generative AI.Sales remained stable at Amazon Web Services andslipped at Google Cloud.Analysts say that AI hype may not translate to big sales for cloud providers until at least 2025.The promise of a generative AI gold rush has whipped the tech sector into a frenzy of anticipation, and with the exception of Microsoft, the hype has yet to translate into revenue growth for cloud providers.Cloud computing sales growth rates slowed to historic lows this year as customers slashed IT budgets.Amazon Web Services, the largest cloud provider in the world, reported a 12% year-over-year sales increase for each of the last two quarters, less than half its growth rate for the same time last year.Microsoft and Google, the next two biggest American cloud providers, also saw cloud revenue growth rates slow this year.Microsoft Azure and other cloud services saw revenue growth of 29%, down from 35% this time last year.Google this week reported a 22% year-over-year increase in cloud revenue the past quarter, down from 28% the previous quarter. The company attributed this to customer "optimization," or looking for ways to save money on cloud services.Wall Street has been hopeful that generative AI will provide a much-needed revenue boost for the big three cloud providers.Still, analysts say it's too soon to expect much of a lift.The one exception is Microsoft, which has spent billions investing in generative AI startup OpenAI, maker of the chatbot ChatGPT."On the AI front, the near-unanimous view was that enterprise spend remains very early stage," UBS managing director Karl Keirstead wrote in a research note to investors last week.For its last quarter, Microsoft's cloud services unit reported that 3% of its sales growth came from generative AI, one percentage point more than expected.Sales are coming from services like Microsoft 365 Copilot, a virtual AI assistant made with OpenAI's technology.Microsoft's OpenAI investment gave it a head start on selling generative AI services like Copilot, which can easily be purchased as an upgrade to existing plans.Still, cloud customers surveyed by Keirstead's team broadly stated that they are still figuring out what to do with the nascent technology."Enterprises are just trying to understand AI, such as that we're being pulled in to do AI strategy work," one cloud partner reported to UBS. "Actual spending is not material yet and even the proof-of-concepts you hear about are really just companies playing around."Another partner suggested that while the corporate world eagerly jumps on the generative AI bandwagon, company leaders are either realizing they're not prepared for it or they just don't understand it, making it difficult for cloud providers to close deals."People seem stuck between FOMO (fear of missing out) and FOJI (fear of jumping in)," the partner told UBS."It's caused a bit of paralysis in some cases where decisions are taking longer."A third partner said they'd seen some generative AI deals close, but not many."It's still fewer and far between," the partner told UBS.Wall Street analysts blame the spending delay on the current economic environment, which remains persistently uncertain due to rising inflation, the continuing war on Ukraine, and now the fighting between Israel and Hamas."We believe there will be a long ramp to monetization and generative AI may not be material for most companies until 2025," RBC Capital Markets managing director Rishi Jaluria wrote in a research note this week.He described investors as "jittery" going into software earnings season.AWS this week touted the launch of general availability for its large language model Bedrock, which gives customers access to a wide variety of AI models from third-party providers like Anthropic and Stability AI.Amazon CEO Andy Jassy stressed on the earnings call Thursday that generative AI is still in its "early days.""Companies are still learning which models they want to use, which models they use for what purposes, and which model sizes they should use to get the latency and cost characteristics they desire," Jassy said on the call."In our opinion, the only certainty is that there will continue to be a high rate of change."Got a tip for this reporter? Contact Ellen Thomas at [email protected] or on the encrypted messaging app Signal at +1 (646-847-9416).

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