As the Q2 2024 earnings season wraps up, Bernstein analysts have weighed in on how some of the big AI cloud providers — Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Oracle (NYSE:ORCL) — are stacking up in the competitive hyperscale cloud market.
Despite varying performances, the overarching theme is that generative AI is beginning to play a crucial role in driving revenue growth across the board.
Amazon: The firm says AWS experienced a strong quarter, with revenue growth of 19% year-over-year, reaching $26 billion.
Bernstein highlights that AWS's acceleration was a bright spot in Amazon's overall performance, driven by a combination of the end of cloud optimization efforts and an uptick in AI-related activities.
Looking ahead, AWS is expected to maintain its growth momentum, particularly as AI-related cloud activities ramp up in the second half of the year. However, analysts note that margins might compress towards 30% due to increased depreciation tied to AI investments and a ramp in technical headcount.
Microsoft: Analysts say Microsoft's Azure continues to solidify its position in the AI space, with Azure AI contributing 8% to its growth.
While Azure's overall growth came in slightly below expectations due to capacity constraints and non-AI demand softness in Europe, analysts believe that Microsoft has taken the AI mantle from Google. Azure's growth is expected to accelerate in the latter half of FY25 as capacity issues dissipate and AI demand increases.
Google: Google Cloud showed strong performance with a 29% year-over-year growth, exceeding expectations and reaching $10.3 billion in revenue. AI-related revenues, accounting for 6-10% of GCP's total, played a significant role in this growth.
However, analysts caution that rising costs related to hiring technical talent and increased depreciation could weigh on margins in the coming quarters.
Oracle: Oracle's cloud business, though smaller than its competitors, is gaining traction, according to analysts. They note that OCI Gen 2 is starting to drive significant growth for Oracle, particularly through its partnerships with Microsoft, Google, and OpenAI.
Analysts see Oracle's cloud business as poised for "hyper-growth" with strong demand and expanding capacity.