Alphabet, Google’s parent company, faced disappointment from investors as its cloud business reported its slowest growth in at least 11 quarters, causing the company’s stock to drop 5.7% after-hours. Despite surpassing Wall Street’s expectations in profit and sales, Alphabet’s shares suffered, emphasizing the high expectations investors have for the company’s performance in artificial intelligence and the cloud sector. This slowdown in cloud revenue growth, dropping to 22.5% in the third quarter from 28% in the previous quarter, is attributed to concerns of a decelerating global economy, prompting businesses to reduce spending on cloud-related services, including costly AI tools. Google Cloud’s Q3 revenue reached $8.41 billion, marking the slowest growth since at least Q1 2021, with an operating income of $266 million, compared to a $440 million operating loss the previous year. Wall Street had anticipated cloud computing revenue of $8.62 billion. In contrast, Microsoft’s Intelligent Cloud unit, housing the Azure cloud platform, reported revenue growth to $24.3 billion, surpassing analysts’ estimates and driving Microsoft shares up by 5% after hours.
This discrepancy underscores the fierce competition in the cloud sector, with Microsoft’s Azure platform maintaining robust growth despite market concerns. Alphabet revealed that its spending on capital expenses in Q3 amounted to $8.06 billion, primarily attributed to investments in technical infrastructure, particularly in servers and data centers due to expanded AI computing initiatives. Earlier in the year, Alphabet initiated layoffs affecting over 12,000 employees, constituting approximately 6% of its global workforce, as part of its efforts to adapt to evolving economic conditions. Severance and related charges of $2.1 billion were recorded for the first nine months of the year. Despite headwinds in the cloud division, Alphabet reported a net profit of $19.69 billion for the July-September period, compared to $13.91 billion the previous year, with Q3 revenue standing at $76.69 billion, surpassing estimates of $75.97 billion.