Alphabet CEO Sundar Pichai believes 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 the stock prices of both rose on the results, with Alphabet further encouraged by its new plans to buy back more shares and issue its first dividend.
But the near-term fortunes of Microsoft and Google, at least as far as their creative AI efforts are concerned, look different under the hood and in comments from their executives. How investors, workers, and potential customers perceive competitors' duplicitous efforts may determine who gets the better share of the hundreds of billions of dollars in spending on such software in the coming years.
In a call with financial analysts on Thursday, Nadella emphasized that Microsoft now has 1.8 million users for GitHub Copilot, a creative AI tool that helps engineers write software code. That's up from 1.3 million users a quarter ago.
Among Fortune 500 companies, 60 percent are using Copilot for Microsoft Office 365, a virtual assistant that uses generative AI to help workers write emails and documents, and 65 percent are using the Microsoft Azure cloud service. which enables them to access generative AI software from ChatGPT. Creator Open AI. “Azure has become the go-to port for anyone doing an AI project. Microsoft's $13 billion investment in OpenAI has certainly helped win over these clients,” Nadella said.
Interest in AI services led to revenue at Microsoft's largest unit, cloud services, rising seven percent from a year earlier, and Microsoft's overall sales rose 17 percent to about $62 billion. It also gained cloud market share, Nadella added. Microsoft saw the number of $100 million cloud deals grow 80 percent during the quarter compared to the same period a year ago, and $10-million deals doubled.
Alphabet's Pichai also had milestones to be proud of. More than 1 million developers are using Google Cloud's generative AI tools and 60 percent of investor-backed generative AI startups are Google Cloud customers, he told analysts in a separate call. Generative AI is also powering the ad campaigns of Google's advertising clients.
But Pichai didn't say how many Google had signed up for Gemini Advanced, the $20-a-month subscription plan announced in February that gives access to the company's latest AI chatbot.
On Google's core business of search, Pichai did not share revenue figures related to experiments using generative AI to summarize query results. By providing more direct answers to searchers, Google may have fewer opportunities to show search ads if people spend less time doing additional, more refined searches. The types of ads Google shows may also need to change.
While Pichai said the test shows that users exposed to creative AI-powered search are doing more searches, they are also potentially less profitable for Google because of the power to power more advanced search engines. The underlying technology is more expensive than running its legacy systems.
Pacquiao expressed little concern on either front. “We are very, very confident in how we can manage the cost of presenting these questions,” he said. “I am comfortable and confident that we will be able to manage the monetization transition here as well. It will take place over time.”
Alphabet's overall sales rose 15 percent to nearly $81 billion.
Microsoft spent about $12 billion last quarter investing in infrastructure like servers and data centers. But the results and comments on Thursday suggest that Microsoft is further ahead in delivering payments.
For now, shareholders are discounting both companies. At Thursday's close, Microsoft shares were up 35 percent over the past year and Alphabet shares were up 51 percent over the past year. They are both at or near all-time highs. But if customers keep flocking to Copilot and Gemini and Google search prospects aren't as obvious, trends may soon change.