Google’s AI-Powered Cloud Success Signals Growth Potential for Amazon and Microsoft

Alphabet’s strong cloud performance in the July-September quarter underscores the rising demand for AI-enhanced computing, a trend likely to benefit major cloud players like Amazon and Microsoft. Google Cloud’s revenue surged 35%—the fastest growth in two years—exceeding analysts’ expectations of 29%, and lifting Alphabet’s stock by 5.5%.

“Google likely has the strongest cloud growth this quarter compared to Amazon and Microsoft,” noted Angelo Zino, senior equity analyst at CFRA Research. Google Cloud, which contributed 13% to Alphabet’s quarterly revenue, continues to grow despite being smaller than Amazon’s AWS and Microsoft’s Azure. In contrast, AWS and Microsoft’s Intelligent Cloud unit accounted for 18% and 44% of their respective revenues in recent quarters.

This marks Google Cloud’s fourth consecutive quarter of accelerating growth, following a period of slower expansion in early 2023, attributed by Alphabet to “customer optimization efforts.” According to Bob O’Donnell, president and chief analyst at TECHnalysis Research, “Google Cloud’s growth highlights its AI strength, which is drawing more organizations to partner with Google.”

Google has differentiated itself in the AI space with its Tensor Processing Units (TPUs), custom chips designed to enhance AI processing, as well as robust security features. These advantages have helped Google Cloud attract customers despite its relatively smaller AI infrastructure, explained Charles Rogers, an analyst at M Science.

Alphabet is investing significantly in AI across its businesses, including enhancements to its core Search product to better compete with Microsoft-backed OpenAI. The company is also expanding its cloud infrastructure, with plans to build new data centers globally. Additionally, Google has integrated its Gemini AI chatbot into Google Cloud, offering features for AI-powered code generation, data analysis, and cybersecurity intelligence.

These investments are resonating with customers, who are increasing their spending on Google’s AI offerings, including the Vertex AI platform, which allows businesses to leverage Google’s models or create custom ones. Gil Luria, head of technology research at D.A. Davidson, remarked, “Google Cloud’s exceptional growth and margin improvements reflect Alphabet’s successful AI monetization strategy.”

Alphabet’s new CFO, Anat Ashkenazi, confirmed that capital expenditures would increase in 2025, driven by Google’s AI and cloud expansions. As Google Cloud’s AI-driven success continues, Amazon and Microsoft stand to benefit from a market that increasingly values advanced AI capabilities in cloud services.