Google Cloud Earnings Show ‘Risk’ of Losing More Ground to AWS, Azure

After two quarters of higher-than-expected results, Google Cloud earnings took a hit in the three months ended Sept. 30.

Reuters attributed the slower growth to fears of a lagging global economy, as well as higher interest rates — factors that have organizations once again paying attention to how much they spend on cloud computing. That attentiveness extends to AI tools, as Reuters noted, which are pricey. As such, Google Cloud revenue showed an increase of 22.5% in the third quarter, compared to 28% in the April-June window.

Specifically, Google Cloud earnings showed $8.4 billion in revenue — a $20 million miss. That marked the slowest growth for the world’s third-largest cloud computing provider since at least the first quarter of 2021, as many outlets noted. Wall Street was looking for $8.6 billion in sales.

Jesse Cohen, senior analyst at Investing.com, told Reuters that Google Cloud’s performance this quarter puts the company “at risk of falling further behind Azure and AWS.”

Nonetheless, Alphabet CEO Sundar Pichai put on a brave face as the parent company of Google Cloud beat analysts’ hopes for revenue and earnings per share.

Google's Sundar Pichai

“I’m pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more,” he said in a prepared statement. “We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

Overall Alphabet Earnings

Indeed, Alphabet reported $64.1 billion in revenue, surpassing projections of $63 billion. That figure excluded traffic acquisition costs yet came in higher than the $57.3 billion from the same quarter a year ago.

Still, the dismal Google Cloud earnings sent the corporation’s stock tumbling nearly 7% in after-hours trading.

Alphabet’s market cap stands at $1.76 trillion.

What Happens Next?

For Google Cloud, which is emphasizing AI as much as its competitors, the question becomes what to do next. The answer could lie in AI services, even more partner buy-in, or some other solution. What’s clear is that investors want to see improvement.

“If you want this stock to keep going higher, you’ve got to have cloud become more profitable,” Lee Munson, chief investment officer of Portfolio Wealth Advisors, told CNBC’s Kelly Evans on Tuesday. “It’s a third-rate cloud platform. We need to see it make money.”

That’s likely a bitter pill for Google Cloud to swallow, especially in light of its next-largest rival’s unexpectedly high growth rate. Microsoft on Tuesday said Azure delivered 29% more revenue than forecast.