Alphabet Inc. (GOOG -6.50%) (GOOGL -6.57%) has been facing challenges in catching up with Microsoft Corporation (MSFT -1.35%) in the cloud and AI markets. In the first nine months of 2023, Alphabet generated 78% of its revenue from Google’s advertising business, 11% from Google’s ‘other’ non-advertising businesses, and another 11% from its Google Cloud Platform (GCP). While Google’s advertising business suffered a slowdown in 2020 due to the pandemic, its cloud growth offset that slowdown as more companies ramped up their spending on cloud-based services. However, both of those growth engines cooled off over the past two years. Inflation, rising interest rates, geopolitical tensions, and supply chain disruptions have all weighed down on its growth rates.
Ten years ago, Alphabet was worth $377 billion, while Microsoft was worth only $306 billion. However, as of the latest data, Microsoft is now nearly 60% more valuable than Alphabet, with a market cap of $3 trillion compared to Alphabet’s $1.9 trillion. Microsoft became a growth stock again after Satya Nadella, who took over in 2014 as its third CEO, prioritized the expansion of its cloud, mobile, and artificial intelligence (AI) ecosystems. On the other hand, Alphabet continued growing under Sundar Pichai, who took on the CEO role in 2015, but its core advertising business faced tougher competition from social media platforms as it struggled to keep pace with Microsoft in the cloud and AI markets.
Google’s parent company is now facing the challenge of catching up in the cloud and AI races. The growth rates of its core businesses, including Google’s advertising revenue, Google’s ‘other’ revenue, and Google Cloud revenue, have all slowed down over the past two years. This slowdown can be attributed to various factors such as inflation, rising interest rates, geopolitical tensions, and supply chain disruptions.
Alphabet’s struggles in the cloud and AI markets have led to questions about whether it can catch up to Microsoft again by 2030. The company will need to address the challenges it faces in these markets to regain its momentum and compete effectively with Microsoft in the coming years.
