AI is the new cloud cash machine

Welcome to Runtime! Today: Microsoft and Google Cloud turn in their quarterly report cards, Blackstone's plan to become a data-center giant, and the latest funding rounds in enterprise tech.

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GrAIt quarters, everybody

It's been a little more than a year after the generative AI boom kicked off with Microsoft's dramatic expansion of its partnership with OpenAI, which forced Google, the company that invented the technology at the heart of the OpenAI's large-language models, to overhaul its product road map in response. Those investments are paying off.

Both Microsoft and Google Cloud reported earnings Tuesday that beat Wall Street expectations in their respective categories. Microsoft said Azure revenue was up 30% thanks in large part to AI, and Google Cloud revenue jumped 26% while operating income swung from a $186 million loss to a $864 million profit.

• Microsoft CFO Amy Hood attributed six percentage points of Azure's growth to AI revenue, with Azure OpenAI Service's APIs playing a key role in that growth.
• There are now 53,000 customers using the basic Azure AI platform tools, said CEO Satya Nadella, and one-third of those customers are new to Azure.
• GitHub Copilot appears to be the real star of Microsoft's AI investments, with overall GitHub revenue increasing by 40% year-over-year and the number of paid users on GitHub increasing by 30% quarter-over-quarter.

Google Cloud also attributed its earnings upside to the AI boom.

• "Vertex AI has seen strong adoption with the API requests increasing nearly 6x from the first half to second half last year," said Alphabet CEO Sundar Pichai, on a conference call with analysts following the release of the results.
• And more than a million people have tried Duet AI, Google's Copilot-like experience for Google Workspace customers that has yet to be released to its general customer base.
• The company is also beefing up its presence among channel resellers — a longtime stronghold for Microsoft — with the number of deals made through partners tripling from 2022 to 2023, Pichai said.

Both companies seem to have moved past the "optimizations" that cloud customers across the board were looking to make in 2023 to cut their costs amid economic worries.

• "In GCP, the results reflect strength across industry sectors," said Ruth Porat, Alphabet's president, CIO and CFO.
• "We are going to continue to have these cycles where people will build new workloads, they will optimize the workloads, and then they'll start new workloads," Nadella said. "That period of massive optimization-only, and no new workloads (started), I think that has ended at this point."
• And both companies will continue to pour money into revamping their data centers for the AI boom: Microsoft plans to spend "materially" more in the upcoming quarter than the $11.5 billion it spent this quarter on capital expenditures, and Google's 2024 capital expenditures "will be notably larger" than the $32 billion it spent last year, Porat said.

AWS reports earnings on Thursday.

Will they come?

Private equity has been one of the largest forces in enterprise software over the last several years, a bet that professional management (read: cost cutting) can turn around the fortunes of underperforming software companies. Blackstone now wants to have the same effect on the data-center market.

Bloomberg reported Sunday that Blackstone is in the middle of an audacious plan to build a huge number of data centers around the U.S. through its real-estate investment arm. After paying $10 billion for QTS in 2021, the investment firm is now pouring money into data-center construction and QTS has already "become North America’s largest provider of leased data center capacity based on megawatts under contract, after ranking No. 4 just three years ago, according to research firm datacenterHawk," the report said.

A number of factors have Blackstone feeling bullish on data-center construction, including the obvious one — the generative AI boom — and less-obvious ones, such as cloud providers needing to lease more capacity from third-party providers to keep up with demand. But the buildout is facing blowback across the country from residents concerned about power and water use, and if demand doesn't materialize as Blackstone envisions, it's going to be holding onto a lot of empty buildings.

Enterprise funding

Kore.ai raised $150 million in new funding to expand its no-code tools that allow enterprises to build chatbots and customer-service tools.

Rebellions scored $124 million in Series B funding to build a new AI chip with Samsung and boost production of its Atom data-center chip, in hopes of denting Nvidia's huge advantage in this market.

Codeium landed $65 million in Series B funding to increase adoption of its generative AI coding tool.

Anomalo nabbed $33 million in Series B funding and said its annual occuring revenue from its data observability tool had tripled.

Sema4.ai raised $30.5 million and emerged from stealth mode with former Cloudera CEO Rob Bearden at the helm of the startup, which will build tools that use generative AI to help companies automate business processes.

The Runtime roundup

AMD expects to sell $1.5 billion more of its data-center GPUs in 2024 than it expected three months ago, but flat fourth-quarter data-center revenue overall and a weak outlook for PCs sank its stock after hours.

SAP offered customers lagging in their cloud transitions a 50%-off discount to adopt one of its cloud services programs by the end of the year.

A Microsoft engineer said the company asked him to delete a public post on LinkedIn calling out weaknesses in Microsoft's Designer AI tool in December, following earlier attempts to warn executives that the tool had security flaws allowing users to generate and post fake, explicit images, which turned into a whole thing over the past week after Taylor Swift was targeted.

AWS got final approvals to build a new data-center complex in Chile, its first in the country and second in South America.

A 19-year-old Florida Man was arrested earlier this month for his part in a series of 2022 SIM-swapping attacks that led to breaches at Twilio, LastPass, and DoorDash.

Thanks for reading — see you Thursday!