Amazon's AWS Vs. Microsoft Azure Vs. Google Cloud: How The Cloud Race Stacked Up In Q3

While the cloud business has been critical to tech titans Amazon, Inc. AMZN, Microsoft Corp. MSFT and Alphabet, Inc. GOOGL GOOG, not all saw the same levels of success in the last quarter. This is evident from the sharp pullback in the shares of Google parent Alphabet following the release of its earnings, as investors fretted over softer third-quarter cloud revenue.

Here’s a look at how the Big Three’s cloud businesses fared in the third quarter:

Amazon Wows With Guidance

Amazon’s cloud business, Amazon Web Services, or AWS, reported revenue of $23.06 billion in the third quarter. This marked a 12.28% year-over-year gain and a 4.15% quarter-over-quarter increase. Analysts, on average, had penciled in a number of $23.2 billion, according to StreetAccount, CNBC reported.

Chart courtesy of Statista

Incidentally, AWS revenue, which was on an unhindered upward trajectory until the fourth quarter of 2022, flattened to $21.35 billion in the first quarter of 2023 before recovering to $22.14 billion in the second quarter.

The lackluster performance seen earlier this year reflected caution among businesses, which reined in on IT and cloud spending amid uncertain economic conditions.

AWS accounted for 16.16% of Amazon’s total revenue in the third quarter. The business contributed $6.98 billion to the company’s operating profit. AWS’ operating margin was at a commendable 30.25%.

Amazon sounded more upbeat about the prospects of its cloud business. Speaking on the earnings call, CEO Andy Jassy said, “We signed several new deals in September with an effective date in October that won’t show up in any GAAP reported number for Q3, but the collection of which is higher than our total reported deal volume for all of Q3.” This commentary was primarily responsible for the post-earnings spike in Amazon’s stock.

The executive also noted a large number of companies building generative AI apps in AWS.

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Microsoft Sparkles With Strong Growth

Microsoft’s Intelligent Cloud business fetched the company $24.3 billion in revenue for the September quarter, a 19% year-over-year growth. The Azure public cloud business, which is comparable to Amazon’s AWS and is part of the Intelligent Cloud business, saw 29% growth, faster than the 26% growth in the June quarter and the consensus estimate of 26%. The September quarter growth, however, pales in comparison to the 35% growth last year. The software giant does not break down numbers for its Azure cloud business.

Microsoft CEO Satya Nadella said on the earnings call, “Azure again took share as organizations bring their workloads to our cloud.” CFO Amy Hood noted that higher-than-expected AI consumption contributed to revenue growth in Azure.

Microsoft cloud’s gross margin percentage increased slightly year-over-year to 73%, a point better than expected primarily driven by improvement in Azure, she added.

Hood also said that Azure’s December-quarter revenue growth will likely come in at 26%-27%, in constant with increasing contribution from AI. “Growth continues to be driven by Azure consumption business and we expect the trends from Q1 to continue into Q2,” she added.

Google Cloud Undershoots Target

Alphabet reported Google Cloud Platform, or GCP, revenue growth of 22.47% to $8.41 billion. Sequentially, the GCP revenue rose a more modest 4.73%. The third-quarter number trailed the consensus estimate of $8.64 billion. The cloud business accounted for 18.94% of Alphabet’s total revenue.

Operating income from the business fell from $395 million in the second quarter to $266 million in the third quarter, with an operating margin of 3%.

On the conference call, CEO Sundar Pichai said that about 60% of the world’s 1000 biggest companies are customers of the company’s cloud business. Among the services Google Cloud offers are advanced AI-optimized infrastructure to train and serve models at scale, accelerators and the Vertex AI platform, which helps customers build, deploy and scale AI-powered applications.

CFO Ruth Parot said, “We continue to invest aggressively, given the significant potential we see, while remaining focused on profitable growth.”

Amazon Vs. Microsoft Vs. Alphabet Stock Performance

Amazon ended Friday’s session 6.83% higher at $127.74, according to Benzinga Pro data. Microsoft added 0.59% before closing at $329.81 and Alphabet’s Class C shares edged down 0.03% to $123.40.

For the year-to-date period, Amazon, Microsoft and Alphabet are up 52.07%, 38.46% and 39.07%, respectively.

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