Microsoft surpasses Alphabet in cloud race with OpenAI bet, enterprise focus

investing.com:

By Aditya Soni

(Reuters) — Microsoft (NASDAQ:MSFT) is outstripping Alphabet (NASDAQ:GOOGL) in the race to make money from generative artificial intelligence through early bets on OpenAI and focus on big clients, raising worries that the Google parent could lose share in the cloud-computing market.

Cloud spending by businesses preparing to roll out AI features powered a rebound in growth for Microsoft's Azure platform in its first quarter, lifting the shares of the Windows maker up 3.6% on Wednesday.

But in a sharp contrast, growth at Alphabet's cloud unit hit a near three-year low as its higher exposure to smaller clients dampened growth, sending the company's shares tumbling 6%.

In the battle to tap the next growth driver for the cloud business, Microsoft has focused on its core business clients that already use many of its software services, while Google has turned to startups.

«Demand for artificial intelligence drove Microsoft's growth. Demand among Google's larger clients was similar, but the firm is more exposed to high-growth and startup clients, which have been more aggressive with cost-control efforts,» Morningstar analyst Ali Mogharabi said.

If share losses hold, Alphabet was set to erase more than $100 billion from its market value, underscoring fears that its focus on startups and slower roll out of AI services was delaying the boost from the technology.

Gains in the shares of Microsoft were set to add about $90 billion to its market capitalization.

«Microsoft is using its incumbent software relationships, whereas Google is coming in as a little bit of a challenger here,» said Krishna Chintalapalli, portfolio manager at Parnassus Investments, an investor in Alphabet and Microsoft.

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