Microsoft Is Making Money From AI by Selling Cloud Computing

After Alphabet shares slid about 10 percent in after hours trading while Microsoft shares rose, Wall Street Journal markets reporter Joe Stoner offered a way to understand the split. He called it "a tortoise and the hare situation."

In his view, Microsoft is showing how to make money from AI by leaning on its established cloud and services work. Alphabet still depends on search.

The numbers show the split. Revenue in Azure, the Microsoft service where companies rent computing power and storage instead of running their own computers, rose 48 percent for the quarter. Google also posted huge cloud growth, up 103 percent from a year earlier, with total company revenue up 25 percent, yet investors were still disappointed because Alphabet still depends on search and search still brings in most of its revenue.

Microsoft had faced investors' questions about its AI strategy and does not have its own top AI model, as Google does. Even so, its cloud business shows how to make money from AI, according to Stoner.

Analysts at Yorkville Ives said Microsoft has secured customer demand and has the computing capacity to profit from it. For Microsoft, renting computing power sits near the center of how it earns, while Alphabet still depends on search.

Stoner pointed to spending discipline as well. Microsoft's capital spending, the money spent on data centers, chips, and other long lived equipment, came in below what was expected, which leaves more cash that can be returned to shareholders.

Most analysts are not downgrading Alphabet, and Stoner described the worry as not quite existential. What they want to see is a clear way to make money from AI search. Google says it is expanding ads within AI Mode to international markets, and whether that works will be watched closely.