Why Microsoft jumped and Google slumped when both beat expectations

But the impact of that dispersed AI use is hard to track, and its financial results are uncertain. That has left both companies’ cloud computing businesses, where other firms pay for time and processing power, as the bellwether of their strength in AI.

It’s Microsoft’s Azure business that is likely to benefit if another company, such as Facebook’s owner Meta, wants to train new artificial intelligence tools or use those developed by OpenAI. And while Google’s division reported growth that the vast majority of companies would be thrilled by, it missed market expectations and reflected a continued slowdown that has been broadly in progress since 2021.

Sign of weakness

That worries investors who see it as a sign of AI weakness. Microsoft’s rapid growth, by contrast, will result in a larger market share.

The quote: During an earnings call on Tuesday, Microsoft chief executive Satya Nadella said his company was winning more customers for Azure via “OpenAI APIs as leading AI start-ups use OpenAI to power their AI solutions.”

That’s the word “AI” four times in half a sentence, lest anyone doubt Microsoft’s commitment to the concept.

Our take: Big technology companies are worth trillions of dollars because they sell access to a platform, rather than finished products. Think of Google’s ad network compared to an individual advertising agency. Its obvious whose business is better.

Microsoft is making a play to own that kind of platform for artificial intelligence, albeit in a market crowded by others including Amazon and China’s Alibaba. Alphabet is trying to make sure its existing (enormous) cash cows, including YouTube and Google, don’t get disrupted by AI. That is the difference between it and Microsoft.

Alphabet’s position is tougher. Take search: it has to embed AI results into its results in a way that consumers like, while maintaining just as many ads, and delivering balanced perspectives on topics as controversial as the Israel-Palestine conflict.

And that’s not to mention the brewing conflict that AI results are driving between Google and publishers, who face having their content remixed and used via AI without people having to visit their sites. When you add an ongoing US Justice Department antitrust case, there are plenty of clouds over the company at present.

And another thing: This was the first time that Alphabet reported results since it started airing one of the world’s most lucrative sports, the US NFL, on YouTube.

Its “Sunday Ticket” package cost the online video site more than $US2 billion a season. Google’s executives were upbeat about the deal but cagey about its financial impacts, beyond saying it would increase revenue but also costs.

There’s plenty riding on YouTube’s NFL play. If it works, expect that company and others to bid hard against traditional media companies for sports rights, including in Australia.

The Breakdown is a regular column that unpacks and explains big stories from the tech world.