Alphabet CEO Sundar Pichai is confident Google will find a way to make money by selling access to generative AI tools. Microsoft CEO Satya Nadella says his company is already doing this.
Both companies reported better-than-expected quarterly sales and profits on Thursday. And both companies’ share prices rose on the results, with Alphabet getting an added boost from its new plans to buy back more shares and pay its first dividend.
But the near-term fates of Microsoft and Google, at least as it relates to their generative AI efforts, look different under the hood and in the comments of their executives. How investors, workers and potential customers perceive the rivals’ dueling efforts could determine who gets the better share of the hundreds of billions of dollars in spending expected to flow into such software in the coming years.
In a call with financial analysts Thursday, Nadella said Microsoft now has 1.8 million customers for GitHub Copilot, a generative AI tool that helps engineers write software code. That’s up from 1.3 million customers a quarter ago.
Of Fortune 500 companies, 60 percent use Copilot for Microsoft Office 365, a virtual assistant that uses generative AI to help employees write emails and documents, and 65 percent use a Microsoft Azure cloud service that gives them access on generative AI software from ChatGPT – manufacturer OpenAI. “Azure has become a go-to resource for pretty much anyone running an AI project,” Nadella said. The $13 billion that Microsoft has invested in OpenAI has certainly helped attract these customers.
Strong interest in AI services helped sales of Microsoft’s largest division – cloud services – rise seven percentage points compared to last year, and Microsoft’s total revenue rose 17 percent to nearly $62 billion. It has also gained market share in the cloud space, Nadella added. The number of $100 million cloud deals signed by Microsoft increased 80 percent in the quarter compared to the same period last year, and the $10 million deals doubled.
Alphabet’s Pichai’s also had milestones to boast about. He told analysts on a separate conference call that more than a million developers use Google Cloud’s generative AI tools and that 60 percent of investor-backed generative AI startups are Google Cloud customers. Generative AI also fuels the advertising campaigns of Google’s advertisers.
But Pichai didn’t say how many sign-ups Google had attracted to Gemini Advanced, a $20-a-month subscription announced in February that provides access to the company’s most advanced AI chatbot.
Regarding Google’s core business of search, Pichai did not disclose revenue figures related to experiments in aggregating query results using generative AI. By providing more direct answers to searchers, Google could ultimately have fewer opportunities to serve search ads if users spend less time on additional, more refined searches. The types of ads Google shows may also need to change.
Pichai said that while the tests show that users exposed to generative AI-powered search perform more searches, they may also be less profitable for Google because the underlying technology to support more advanced searchers is more costly than operating its long-standing search engine systems.
Picahi expressed little concern on either front. “We are very, very confident that we can manage the costs of processing these requests,” he said. “I am satisfied and confident that we will make the transition to monetization here too. Time will tell.”
Alphabet’s total revenue rose 15 percent to nearly $81 billion.
It spent about the same amount – about $12 billion – as Microsoft invested in infrastructure like servers and data centers last quarter. But Thursday’s results and comments suggest that Microsoft is further along with its yield.
For now, shareholders are giving both companies leeway. As of Thursday’s close, Microsoft shares were up 35 percent and Alphabet shares were up 51 percent over the past year. They are both at or near all-time highs. But if customers continue to flock to Copilot and the outlook for Gemini and Google Search doesn’t become clearer, the trend lines could soon diverge.