Microsoft outperforms Google in Q1 as AI set to take center-stage

Its partnership with OpenAI gives Microsoft a head start.
Ameya Paleja
Microsoft office near Paris
Microsoft office near Paris

Jean-Luc Ichard/iStock 

After years of playing second fiddle to Google in the search engine market, Microsoft is set to become a technology leader again as businesses and individuals worldwide look to incorporate artificial intelligence (AI) into everything they do. In the Q1 2023 earnings reported recently, the 48-year-old company has outperformed its younger rival, Alphabet.

For years, Microsoft was mainly a market leader in operating systems. Still, the changing nature of computing technologies meant it has ventured into other areas, such as cloud computing and gaming, through its Xbox platform.

Alphabet comprehensively beat Microsoft after it launched a stronger search engine, Google, and took up most of the advertising revenues that followed in the niche. However, as the tech sector looks set to start a new page with AI, Microsoft has all the ingredients in the right place to retake the top spot.

Microsoft's earnings soar as Alphabet stagnates

For the latest quarter, Microsoft's earnings from the cloud and commercial software sales grew even as devices and PC-related software sales declined by nearly 30 percent each. Revenues from its Azure and other cloud services increased 27 percent in revenue, taking its Intelligent Cloud's tally to $22.1 billion. Overall, the company recorded $52.9 billion in revenue, an increase of seven percent from last year.

On the other hand, Alphabet has been hit by the stagnation of the digital advertising market as businesses prepare for the slowing economy and likely recession. After posting consistent growth for over two decades, Google is now stuck in low single digits, marking only a three percent rise in its revenues from last year to $69.9 billion.

Microsoft outperforms Google in Q1 as AI set to take center-stage
The South Lake Union Google Headquarter entrance late in the day

The numbers get interesting as one looks into areas where the two services compete directly. Although Google changed how it calculates costs and reported reduced losses from its Cloud business, Microsoft has shown a substantial 22 percent growth in this sector.

Google's dominance in the search engine market is still strong, but growth is tough to achieve when you control 90 percent of the market share. On the other hand, Microsoft is reinventing its Bing search engine with GPT and has recorded a 10 percent growth in the last quarter.

Microsoft has been slow to roll out Bing Search to users and, in the likely months, even seal a few deals to replace Google as the default search engine on some phones, as per The New York Times report.

After its initial bet into OpenAI's grand plan of making GPT bore excellent results, Microsoft has doubled its commitment with a "multi-year, multi-billion dollar" investment in the generative AI maker. It is bullish about the role of AI in its future growth.

Microsoft's surge when Alphabet says its "outlook remains uncertain" perhaps tells us what 2023 will be like for the two companies.

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