Google-parent Alphabet's cloud business suffered due to long-time rival Microsoft's taking off in the September quarter. While Alphabet's shares fell 7 per cent in after hours trading on Tuesday, Microsoft's rose 5 per cent.
This demonstrated early signs that the Windows maker's investment in artificial intelligence was paying off.
The drop in Alphabet's shares showed investors wanted it to deliver gains in artificial intelligence and demonstrate it remained competitive against Microsoft's Azure and Amazon.com's AWS cloud businesses, according to a report by Reuters.
"While a single quarter doesn't a major trend make, this quarter's cloud results ... suggest that Azure is gaining share against its competition," said Bob O'Donnell, chief analyst at TECHnalysis Research.
"In addition, it could be that Microsoft's very strong messaging on their Copilots and GenAI technology is getting companies to consider them in a more serious way."
Microsoft emerged as an AI front-runner, largely due to its substantial investment into startup OpenAI, the maker of ChatGPT.
Microsoft has been integrating OpenAI's technology across its product catalog, from its search engine Bing to its workplace productivity software suite Microsoft 365 and software coding platform Github.
Alphabet too has deployed AI in dozens of its products such as its flagship Pixel phones and more recently experimented with adding generative AI to its search engine. Earlier this year, the company launched its generative AI chatbot called Bard that competes with ChatGPT.
While Alphabet has prioritised snaring AI startups as customers for its cloud division, Microsoft has relied on its existing relationships to secure larger customers. That strategy reflected in the results, said Krishna Chintalapalli, portfolio manager at Parnassus Investments, an investor in Alphabet and Microsoft.