Microsoft and Google’s AI fixation adds up to better-than-expected earnings

The race between Google and Microsoft to commercialize the latest AI advances still dominated the companies’ earnings calls this week—and both outperformed analyst expectations.

Executives and analysts mentioned the term “AI” at least 90 times in the course of Alphabet’s hour-long broadcast (there were 19 in the same quarter’s transcript last year), while Microsoft’s call included more than 70 references to the technology.

The continued focus on the tech comes as Microsoft invests in generative AI—including a blockbuster partnership with OpenAI—to fuel growth in its Azure cloud services, Office software suite, and newly reinvigorated Bing search engine. Google, meantime, is positioning its competing Bard chatbot to defend its place as the dominant name in search and make it easier for advertisers to create and target messaging.

While Q2 earnings and revenue reported by each company surpassed predictions from analysts polled by Zacks Investment Research, investors seem to have picked a clear favorite in post-earnings trading. Alphabet’s stock rose around 6% the day after the news, while Microsoft dipped around 4%.

That may be because while Microsoft posted growth in its cloud business, the expansion of Azure and its other cloud services slowed slightly from last quarter—26% versus 27% in the previous period, and 40% in the same quarter last year.

Nevertheless, Microsoft CEO Satya Nadella claimed interest among Azure clients in tapping the next generation of AI has not abated, citing Ikea, Volvo, and Flipkart among examples of Azure OpenAI users.

“Every customer I speak with is asking not only how, but how fast, they can apply next-generation AI to address the biggest opportunities and challenges they face—and to do so safely and responsibly,” Nadella said in the call.

Microsoft’s AI-infused Bing, however, didn’t seem to eat too much into Google’s search dominance. Alphabet said its search business grew around 4.8% YoY and 5.6% from the previous quarter. Alphabet CEO Sundar Pichai touted the company’s integration of generative AI into aspects of the search experience.

“This quarter saw our next major evolution with the launch of the Search Generative Experience, or SGE, which uses the power of generative AI to make Search even more natural and intuitive,” Pichai said in the call. “User feedback has been very positive so far.”

Google SVP and CBO Philipp Schindler also teased ways that the company plans to use AI to further transform its ad creation platform, which already features AI-generated headlines and ad descriptions.

Microsoft, meanwhile, has been steadily expanding access to its new Bing Chat interface; reports this week indicated the company was testing it within Chrome and Safari. Microsoft CFO Amy Hood said a struggling ads market would impact the search engine’s growth, but the company hopes for “longer-term opportunity” based on “Bing usage signals.”

But Microsoft and Google’s unrelenting emphasis on AI comes as consumer interest seems to have hit a wall: Insider Intelligence predicted in a report this week that usage of generative AI services among consumers will likely grow at a more modest clip in the next two years.