This analysis was first published in SvD Näringsliv, in Swedish, on April 26th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
While the AI race continues, the core businesses of Microsoft and Google are performing well. That points to billions more in new AI investments to come.
Something unusual happened to Sundar Pichai recently. The CEO of Alphabet — Google’s parent company — appeared on television. Specifically, he was a guest on the CBS interview program 60 Minutes. To talk about AI.
For an ordinary CEO, that might sound like a dream. Interviewed in prime time for the entire American public.
But the CEOs of tech giants are anything but ordinary. They prefer to operate in the shadows and avoid drawing too much attention to themselves and their enormously profitable companies.
The fact that Pichai agreed to appear on television therefore signals that something isn’t quite right.
The issue is that Google has fallen behind and now faces real competition in the hotly contested AI space.
Being anything other than market leader is a position Google is entirely unaccustomed to. After being spoiled with a search market share of over 90 percent, it seems unfamiliar to suddenly be neither the biggest nor the best.
The main competitor in AI, however, is very familiar.
It’s Microsoft — led by CEO Satya Nadella — that has successfully reinvented the company through its billion-dollar investments in OpenAI.
The two tech giants have long competed across several areas, including enterprise software and cloud services. But services like ChatGPT have made the world question the future of the lucrative search market in a way that hasn’t happened before.
It was therefore fitting that both rivals reported their quarterly results at the same time. On Tuesday evening they both surprised with strong results, revealing two companies ready for a continuing and intense contest.
Google beat analysts’ modest expectations on both revenue and profitability. Particularly notable was Google Cloud turning profitable for the first time. Revenue growth was a modest 3 percent year-over-year, however, and it was the third quarter since Google’s 2004 IPO in which revenue had declined.
Microsoft countered with something similar. They also beat expectations, with stalwarts like Office for business growing 14 percent. Their newer cloud services, including Azure, grew 27 percent — lower than previous quarters, but at the top end of their own guidance.
The fact that both companies’ core businesses remain strong argues for even larger investments ahead — particularly in AI. That much was clear when the abbreviation “AI” was mentioned an almost parodically large number of times by both CEOs in their briefings to press and analysts.
Compare this to Meta, for example, where weak growth has forced them to focus on “efficiency” — a euphemism for laying off tens of thousands of employees. Doubling down on the much-discussed metaverse is harder to justify when the core business is struggling.
Neither Google nor Microsoft will have that problem.
On the contrary, Microsoft has more wind in its sails than it has had in a long time. When it also turns out that the company’s existing products haven’t suffered — and in some cases have directly benefited — from the AI focus, continued investment becomes a foregone conclusion.
Microsoft has also managed to demonstrate what a more practical application of AI could look like. GitHub, which Microsoft acquired in 2018, has for example launched an AI product called “Copilot” that can assist software development — essentially an AI assistant that helps you write better code.
For Google, the task is to catch up. They were — and are — one of the world’s leading companies in AI. They are now reorganizing to move faster.
This is Sundar Pichai’s single greatest challenge. His pay last year — roughly 230 million kronor — suggests the expectations are high.
Google cannot afford to lose this battle, and a failure here would likely mean Pichai’s departure. His television appearance last week suggests he is taking the challenge seriously. Tuesday’s quarterly numbers mean he’ll have the resources to act on it. Whether he can deliver remains to be seen.
Alphabet beat expectations in its first-quarter results, with revenue of $69.8 billion against an estimated $68.9 billion. Earnings per share came in at $1.17, versus the Wall Street analyst consensus of $1.07. Microsoft also exceeded expectations in its third-quarter results, posting earnings of $2.45 per share against an anticipated $2.23. Revenue reached $52.9 billion — a 7 percent increase year-over-year, above the $51.0 billion analyst consensus.
