Recent third-quarter financial reports by Meta, Alphabet, Microsoft and Amazon should quell some of the concern about AI contributions to revenue, at least for the hyperscalers making the biggest investments.
Google CEO Sundar Pichai said its investment in AI is paying off in two ways: fueling search engagement and spurring cloud computing revenues. That’s a good example of one way AI will be monetized in many instances: indirectly, as existing products are improved.
Google services revenue--which includes search--grew 13 percent in the third quarter of 2024. Google Cloud, whose revenues grew 35 percent in the third quarter of 2024.
Separately, Microsoft likewise reported robust AI-linked revenue gains. “Our AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, which will make it the fastest business in our history to reach this milestone,” says Satya Nadella, Microsoft CEO.
Andy Jassy, Amazon CEO, said “our AI business is a multi-billion dollar business that's growing triple-digit percentages year-over-year and is growing three times faster at its stage of evolution than AWS did itself.”
Nadella points to Azure cloud computing as a service revenue as one component of that growth. But silicon (accelerators, for example); Azure AI; developer tools (GitHub); CoPilot and LinkedIn as AI-linked products with revenue contributions, if perhaps indirect.
One thing Microsoft does not appear to be doing is renting graphics processor unit compute cycles, as some other cloud computing firms are doing.
“We're not actually selling raw GPUs for other people to train,” says Nadella. “In fact, that's sort of a business we turn away because we have so much demand on inference.”
“We kind of really are not even participating in most of that (renting GPU compute cycles) because we are literally going to the real demand, which is in the enterprise space or our own products like GitHub Copilot or M365 Copilot,” Nadella says.
In fact, Microsoft seems to be going the other way, leasing compute cycles and GPU access from firms such as CoreWeave.
Google CEO Sundar Pichai said its investment in AI is paying off in two ways: fueling search engagement and spurring cloud computing revenues. That’s a good example of one way AI will be monetized in many instances: indirectly, as existing products are improved.
Also, as expected, the cost of inference has declined dramatically. “Since we first began testing AI Overviews, we have lowered machine cost per query significantly,” said Pichai. “ In 18 months, we reduced cost by more than 90 percent for these queries.”
And though an argument can be made that AI might cannibalize some significant amount of search, Google has found, since AI Overview was introduced, that “strong engagement” leads to “increasing overall search usage and user satisfaction,” Pichai noted. “People are asking longer and more complex questions and exploring a wider range of websites.”
That, in turn, fuels the advertising revenue potential.
Google Cloud usage to support AI operations also has skyrocketed. “Gemini API calls have grown nearly 40 times in a six-month period,” Pichai said.
Likewise, Google Cloud has seen 80 percent growth in BigQuery ML (machine language) operations over a six-month period, he noted.
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