A series of recent deals, announcements and upgrades involving three of the Club’s major cloud-computing names all share a common thread: Artificial intelligence. It’s further evidence of how Big Tech holdings Alphabet (GOOGL), Microsoft (MSFT) and Amazon (AMZN) are leaning into AI in an effort to reignite cloud growth, which has been slowing since 2022 due to mounting economic uncertainty . It’s unclear when cloud revenue will take off again. But for their part, these three firms have maintained that cloud computing is still in the early innings. Now, with AI booming in popularity, revenue growth rates in the sector are poised to bottom — ultimately allowing for an inevitable bounce. That’s why we’re willing to sit tight with these stocks, as they rebound in 2023 after last year’s terrible declines. Amazon has climbed 44% year-to-date, while Alphabet and Microsoft have advanced nearly 39% and 35%, respectively, over the same stretch. The scope of these cloud developments goes beyond Amazon, Alphabet and Microsoft, touching on other names inside and outside the portfolio. Those include Club holding Nvidia (NVDA), whose chips are essential to the accelerated computing power needed to run AI models. Nvidia hit an all-time last week in a dizzying stock surge and has now climbed 160% since the start of the year. Amazon and Alphabet have more work to do to get back to record highs, but Microsoft has been flirting with its all-time for a while now Bottom line AI adoption is good news for Amazon’s Amazon Web Services (AWS) unit, Alphabet’s Google Cloud and Microsoft’s Azure business. It comes as macroeconomic headwinds have led many enterprises to rein in spending, translating into slower revenue growth for all three cloud-computing units. AWS revenue grew 16% year-over-year to $21.35 billion in its most-recent quarter, compared with 37% in the year-ago period. Alphabet’s Google Cloud sales grew 28% year-over-year to $7.45 billion in the three months ended March 31 , compared with 44% in the first quarter of 2022. Microsoft’s Azure and other cloud services revenue came in at 27% in its most-recent quarter , down from a growth rate of 46% in the year-ago period. Microsoft doesn’t report a specific revenue figure. There’s undoubtedly been a lot of buzz around AI, and investors have to navigate this hype cycle carefully. We all remember the crypto craze and the metaverse mania, both of which have come back to Earth. But, as the recent developments involving these three tech giants show, AI adoption carries significant financial implications for cloud companies that enable other businesses to harness AI’s benefits. And we believe that AI won’t be a flash in the pan. While Nvidia’s indispensable chips make it our favorite way to ride the AI wave, we fully expect the cloud divisions of Amazon, Alphabet and Microsoft to see renewed growth at some point in the coming quarters. To be sure, some of that optimism has been reflected in their stock performance already, but we’re betting there’s additional upside ahead — and we’re willing to be patient to see it through. Alphabet The Mayo Clinic is leveraging Google Cloud and its generative AI capabilities to help medical professionals sift through and analyze heaps of medical data easily. Google is testing a new AI-powered service called Enterprise Search on the Generative AI App Builder, which lets companies create custom chatbots and search applications by combining their proprietary data with Google’s search functions to ultimately help analyze heaps of data. The product, which was introduced Tuesday, is expected to benefit the health-care industry, a sector that manages large amounts of data. The Mayo Clinic will be experimenting with the Google tool in the coming months in hopes of helping medical professionals quickly interpret data. The collaboration is a part of a 10-year strategic partnership the Mayo Clinic and Google started in 2019 to allow the health-care provider to accelerate its digital transformation. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance. Google also announced an expanded partnership with Club holding Salesforce (CRM) Tuesday, through which the enterprise software company plans to integrate Google Cloud’s AI functions to harness fresh insights from customer data. Google and Salesforce formed a strategic technology partnership back in 2017 to help deliver innovative solutions to customers . Microsoft The technology that powers popular AI tool ChatGPT is now available on Microsoft’s Azure Government cloud, allowing U.S. government customers to tap into the benefits of generative AI. Microsoft is a major investor and collaborator with OpenAI , the startup behind ChatGPT, which took the world by storm in late 2022. Azure Government customers can access three of OpenAI’s large language models — GPT-4, GPT-3, and Embeddings — to “improve efficiency, enhance productivity, and unlock new insights from their data,” Microsoft said in a corporate blog post Wednesday. MSFT YTD mountain Microsoft (MSFT) year-to-date performance. Microsoft’s Azure OpenAI Service has been available to commercial customers, but the more-stringent security and compliance requirements of government agencies had previously been a barrier to access on the Azure Government cloud. Microsoft said Wednesday it had deployed a secure protocol to work around that issue. Azure Government customers include the Department of Defense and the Department of Energy. A part of the Defense Department known as the Defense Technical Information Center intends to explore use of OpenAI’s models, Bloomberg reported Wednesday , citing an agency official. Amazon Piper Sandler said Wednesday that AWS is nearing a revenue-growth trough, meaning its growth rate should bottom out soon. Analysts at the firm expect Amazon’s cloud growth to then reaccelerate on the back of Nvidia’s stellar 2024 first-quarter earnings , which revealed incredible demand for its data-center chips that power generative AI models. That’s important because Nvidia and AWS data-center revenues have had a roughly 98% correlation since 2017, according to Piper Sandler. AMZN YTD mountain Amazon (AMZN) year-to-date performance. The firm raised its AWS revenue estimates for by 1% for 2024 and by 2% for 2025. Piper Sandler also increased its price target on Amazon shares to $150, from $130, while reiterating an overweight, or buy, rating on the stock. (Jim Cramer’s Charitable Trust is long MSFT, NVDA, AMZN and GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Sundar Pichai, chief executive officer at Google LLC, speaks during the Google Cloud Next ’19 event in San Francisco, California, U.S., on Tuesday, April 9, 2019.
Michael Short | Bloomberg | Getty Images
A series of recent deals, announcements and upgrades involving three of the Club’s major cloud-computing names all share a common thread: Artificial intelligence.
