Microsoft vs. Google and the Battle for AI Cloud Infrastructure

The generative artificial intelligence (AI) arms race leaderboard is neck and neck.

It hasn’t even been a full calendar year since the technology was first commercialized at scale by Microsoft and OpenAI, and already the titles of winner, loser and upstart are trading hands among Big Tech firms — all of whom have seen their market caps and valuations soar alongside mentions of the technology in their respective earnings calls.

And after Microsoft’s early lead, Google now appears to be leading by a nose.

Microsoft’s most recent quarterly 2023 earnings missed some analyst expectations while Alphabet’s generally exceeded Wall Street projections.

“[G]rowth from our AI services will be gradual as Azure AI scales and our Copilots reach general availability dates,” Microsoft Chief Financial Officer Amy Hood said Tuesday (July 25) on a call with analysts.

“We intuitively know how to integrate AI into our products,” Alphabet and Google CEO Sundar Pichai told investors.

Microsoft, for its part, has been generally leaning on its partnership with OpenAI for spear-tip innovation.

Microsoft’s stock was trading down 4% as of Wednesday morning (July 26), while Alphabet’s was up around 6%.

Both tech giants are up over 40% year-to-date, underscoring the level of hype over AI.

After all, the technology’s contributions not just to revenue but to the fundamental realities of life are expected to be a decades-long phase shift.

See also: It’s a ’90s Browser War Redux as Musk and Meta Enter AI Race

The Importance of Infrastructure

One way Big Tech is throwing its size around as firms jockey for position is by owning the fundamental architectural on-ramps to the AI ecosystem.

Today’s AI operations require more data storage and memory capacity, as well as significant capital investment, industry-leading technical expertise, and above all, expensive large-scale infrastructure built atop rows of increasingly-scarce graphics processing units (GPUs).

That’s why, as Alphabet’s Pichai said, “more than 70% of generative AI unicorns are Google Cloud customers.”

“The deep computer science work, the talent and the infrastructure we have built from the earliest days … will enable us to stay at the cutting edge of technology,” he added.

Alphabet executives said their business provides the widest choice of AI supercomputer options to organizations looking to host and develop their own solutions, and the company remains committed to investing in its own technical and back-end needs to stay in front of the AI arms race.

“We do expect elevated investment in our technical infrastructure, and the primary driver is to support the opportunities we see in AI as we continue to see the pace of innovation quicken,” said Alphabet and Google CFO Ruth Porat.

Meanwhile, per Microsoft’s earnings call, more than 11,000 organizations are using the company’s competing Azure Open AI service.

Microsoft’s Hood separately added that the company’s capital spending will increase “sequentially each quarter,” while Microsoft continues to spend on building out more of its cloud and data center infrastructure to support AI technology.

Alphabet’s Cloud business revenue grew by 28% for the second quarter of 2023, while Microsoft’s own Azure cloud business revenue was up 21% for the quarter that ended June 30.

See also: How AI Regulation Could Shape Three Digital Empires

Getting Ahead of Regulation

Government moves at a snail’s pace when compared to the hyper-fast commercialization of tech innovations. Today’s AI models are operating and scaling absent any policy guardrails, at least until China’s interim regulations go into effect Aug. 15.

Now, four of the world’s bleeding-edge AI companies have come together to form the Frontier Model Forum, a new working group with the goal of “ensuring the safe and responsible development of frontier AI models.”

The forum’s founding members include Google, Microsoft, OpenAI and Anthropic, which met Friday (July 21) — along with Amazon, Meta and AI firm Inflection — with the current U.S. administration and agreed upon eight voluntary commitments to help move toward safe, secure and transparent development of AI technology.

Observers have noted that statements issued by the forum’s members suggest its work will eschew the ongoing questions about copyright, data protection and privacy rights that regulators have so far honed in on.

Instead, the forum looks to focus its attention on combating fears that AI will one day take over humanity and other doomsday scenarios. The industry group appears to wish to write its own rules before federal regulation takes shape.

It isn’t the only industry group whose mission is to promote the responsible use of AI. The Partnership on AI was founded in 2016 by Alphabet (then Google), Meta (then Facebook), Amazon, Microsoft and IBM.

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