Wall Street's Revenue Rollercoaster: AI Deals Shake Up Cloud Giants
In the fast-paced world of Wall Street, concerns are mounting about the big tech giants and their cloud revenue numbers. The worry is whether the impressive growth figures are a true reflection of market demand or if they are being artificially inflated through strategic investments in AI startups. Analysts and investors are particularly uneasy about a practice known as “Revenue round tripping.” This happens when a tech behemoth injects funds into an AI startup, which then turns around and purchases cloud and AI services from the same big tech company. It’s almost like a money merry-go-round, with the investment circling right back as cloud spending.
A prime example of this phenomenon was Amazon Web Services’ hefty $4 billion investment in Anthropic. In return, Anthropic pledged to make AWS its “Primary cloud provider.” Google and Microsoft have engaged in similar transactions, with Google backing certain startups and securing cloud service agreements in return. Oracle, too, joined the party by becoming the preferred cloud partner for Cohere following its investment in the AI startup. Last year, Business Insider broke the story on these deals, prompting high-profile investors to question the integrity of cloud revenue numbers that could be artificially inflated through such arrangements.
The crux of the issue lies in the lack of transparency surrounding these transactions. A note by Jaluria highlighted the uncertainty, questioning whether AWS revenue encompasses the training of Anthropic models or if Google Cloud Platform (GCP) reaps any benefits from internal training of Gemini. This shroud of ambiguity not only muddies the waters for cloud vendors but also casts doubts on the narrative of a broad-based recovery in cloud workloads. Given the recent slowdown in cloud spending growth due to economic uncertainties, the revelation of revenue round-tripping deals could further cloud the industry’s outlook.
Amidst the skepticism, there seems to be a glimmer of hope. Microsoft has emerged as a potential outlier, with RBC reporting that the company explicitly stated it does not recognize revenue from OpenAI training its GPT models on Azure’s cloud infrastructure. This transparency sets Microsoft apart from its counterparts and underscores the importance of clear disclosure in financial dealings. As the debate rages on about the true drivers of cloud revenue growth, investors and analysts will undoubtedly keep a keen eye on future financial reports for any signs of artificial inflation. In a world where trust and transparency reign supreme, the spotlight shines ever brighter on the tech giants and their cloud revenue practices.
