• by Laurie Sullivan  @lauriesullivan, October 24, 2023

Microsoft and Google continue to battle it out for dominance in the cloud and advertising sectors. Both reported third-quarter revenue on Tuesday.

Each showed strength in specific markets, with Microsoft gaining ground in revenue from search advertising and cloud services.

Microsoft’s revenue rose 14% to $56.5 billion based on advancements in artificial intelligence (AI) integrated into every layer of the company’s tech stack.

Search and news advertising revenue, excluding traffic acquisition costs, increased 10%, and revenue from LinkedIn in rose 8%.

"With copilots, we are making the age of AI real for people and businesses everywhere," stated Satya Nadella, chairman and CEO of Microsoft. "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 cloud computing and AI businesses are likely to continue to experience strong growth. 

Increases reported Tuesday include operating income -- rising 25% to $26.9 billion -- as well as net income rising 27% to $22.3 billion and diluted earnings per share up 27% to $2.99.

Revenue in the company’s More Personal Computing sector rose 3% to $13.7 billion, with Windows revenue rising 5% and Windows OEM revenue growth of 4%. Windows Commercial products and cloud services revenue grew 8%

Xbox content and services revenue increased 13%. The downside is that devices revenue fell 22%.

In a press release, Microsoft said it returned $9.1 billion to shareholders in the form of share repurchases and dividends in the first quarter of the 2024 fiscal year.

Server products and cloud services revenue rose 21% --  driven by Azure and other cloud services revenue growth of 29% -- but that wasn’t the case for Alphabet’s cloud services. It missed estimates for third-quarter revenue, which forced stock shares down by more than 4% in extended trading.

Google’s cloud unit growth slowed to 22.5% in the third quarter, from 28% in the prior three-month period.

But for the most part, advertising spend remained strong in most sectors, although concerns over a slowing global economy have prompted companies to scale back on technology.

“Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition,” said Insider Intelligence senior analyst Max Willens. “While the traction it has among AI startups may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors."

Worldwide, Insider Intelligence expects Google to generate $170.87 billion in net digital ad revenue in 2023 -- up 6.5% over last year -- giving the company a 28.4% share of the worldwide digital ad market. 

Google’s advertising segments rose slightly to $59.6 billion in Q3 2023, up from $54.5 billion in the year-ago quarter.

Google Search contributed the most to Alphabet’s revenue in the advertising sector -- coming in at $44 billion, above consensus vs $39.539 billion in the year-ago quarter.

YouTube Ads generated 7.952 billion in Q3 2023, up from $7.071 billion in Q3 2022. Revenue from the Google Network fell to $7.669 billion vs. $78.72 billion, respectively.