Amazon Web Services (AWS), Microsoft, and Google have all posted their Q3 results for 2023.

AWS saw a strong quarter with double-digital year-on-year sales growth, with sales and income for the unit also jumping more than $1 billion from Q2.

Microsoft reported “higher-than-expected” AI consumption, driving up Azure results.

Though it posted consecutive profits, Google’s operating income for Q3 was down, despite revenue being up.

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AWS: GenAI could generate “tens of billions” in revenue

AWS segment sales increased 12 percent year-over-year to $23.1 billion. Operating income was $7 billion, compared with operating income of $5.4 billion in the third quarter of 2022.

Q2 sales were $22.1bn, while operating income was $5.4 billion.

“We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” said Andy Jassy, Amazon CEO. “The AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI, where the combination of our custom AI chips, Amazon Bedrock being the easiest and most flexible way to build and deploy generative AI applications.”

Overall, the wider company saw Net sales increase 13 percent to $143.1 billion in the third quarter; Operating income increased to $11.2 billion, and Net income increased to $9.9 billion. AWS makes up 16 percent of the company's net sales.

During the earnings call, CEO Jassy said the customer reaction to its generative AI Bedrock service had been “very positive” and its launch into general availability had “buoyed that further.”

He said the GenAI opportunity could equate to “tens of billions of dollars of revenue” for the company over the next several years.

CapEx investments were $50 billion for the trailing 12-month period ended September 30, down from $60 billion in the comparable prior year period. The company said lower fulfillment and transportation CapEx would be partially offset by increased infrastructure CapEx to support AWS, including additional investments related to generative AI and large language model efforts.

Brian Olsavsky said AWS margin improvements were partly down to headcount reductions in Q2 and also continued slowness in hiring.

“There's been also a lot of cost control in non-people categories, things like infrastructure costs and also discretionary costs,” he said. “Natural gas prices and other energy costs have come down a bit in Q3 as well.”

Microsoft: Revenue growth slows from Q2

For Q3, Microsoft’s Revenue in the Intelligent Cloud unit – which includes Azure – was $24.3 billion and increased 19 percent year on year. The company said server products and cloud services revenue increased 21 percent; Azure and other cloud services revenue grew 29 percent and 28 percent.

For Q2 2023, Microsoft’s Intelligent Cloud unit posted revenue of $24 billion.

For the wider company, quarterly revenue was $56.5 billion (up 12 percent), while operating income was $26.9bn and net income was $22.3bn.

Satya Nadella, chairman and chief executive officer of Microsoft, said: "We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers.”

Microsoft’s capital expenditures, including finance leases, were $11.2 billion for the quarter to support cloud demand, including investments to scale AI infrastructure.

In the earnings call, CFO Amy Hood said “higher-than-expected AI consumption” contributed to revenue growth in Azure, but Microsoft Cloud’s slight margin gains in Azure were partially offset by the impact of scaling AI infrastructure to meet growing demand.

She said growth was ahead of expectations primarily driven by increased GPU capacity and better-than-expected GPU utilization of AI services, and on-premises server business revenues increased 2 percent, ahead of expectations and driven primarily by demand in advance of Windows Server 2012 end of support.

Google: Slim GCP profit down from Q2 despite revenue increase

Google Cloud reported Q3 2023 revenues of $8.41 billion. This was up from Q3 2022’s $6.86bn, and Q2 2023’s $8.03bn.

Operating income for Google Cloud this quarter was $266 million, up from the previous year’s $440m loss, but down on Q2’s $395m profit.

The wider company announced revenues of $76.69 billion, operating income of $21.34bn, and a net income of $19.69bn.

Sundar Pichai, CEO, said: “I’m pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices, and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

In the results, Google said adjusting the estimated useful life of servers from four years to six years and the estimated useful life of certain network equipment from five years to six years has resulted in a depreciation expense reduction of $977 million and $2.9 billion respectively, and an increase in net income of $761 million and $2.3 billion for the three and nine months ended September 30, 2023.

Capital expenditures were $8.1 billion for the three months ended September 30, 2023. Company CFO Ruth Porat said this was “driven overwhelmingly” by investment in technical infrastructure, with the largest component for servers, followed by data centers, reflecting a “meaningful increase” in investments in AI compute.

“We do continue to expect elevated levels of investment in our technical infrastructure. It will be increasing in the fourth quarter,” she said. “We will continue to grow CapEx in 2024.”

AI helps cloud companies overcome growth hurdles

Data from Synergy Research Group released this week shows that Q3 enterprise spending on cloud infrastructure services was over $68 billion worldwide, up by $10.5 billion from the third quarter of last year.

"The current economic and political climate has crimped some growth in cloud spending, but there is clear evidence that generative AI technology and services are starting to help overcome those barriers," the company said.

"While the law of large numbers continues to exert downward pressure on cloud market growth rates, AI is giving the market an added boost. Helped by AI, there are signs that many enterprises are through their period of belt-tightening and of optimizing rather than growing their cloud operations. AI is helping to open up a wide range of new cloud workloads."