Wall Street’s Revenue Round-Tripping Fears Sparked by AI Powerhouses Amazon and Google

Wall Street is abuzz with concerns over the cloud revenue numbers of tech giants and whether their growth is being artificially inflated by hefty investments in AI startups and related projects. Analysts and investors are wary of what they term as “Revenue round tripping,” a practice that occurs when a big tech company invests in an AI startup, which in turn procures cloud and AI services from the same big tech company, effectively creating a loop of revenue flow. This situation raises questions about whether these tech giants are essentially purchasing cloud growth through these startup engagements.

The trend became apparent when Amazon Web Services funneled $4 billion into Anthropic, resulting in the AI startup designating AWS as its “Primary cloud provider.” Google and Microsoft followed suit with similar investment strategies, with Google investing in AI startup OpenAI, and Microsoft becoming the cloud partner of Cohere after investing in the startup. Oracle also forged a cloud partnership with Cohere post-investment. Last year, Business Insider shed light on the concerns raised by notable investors regarding the potential inflation of cloud revenue figures due to these types of deals.

The worry is exemplified by a note from Jaluria, questioning whether revenues of AWS include training Anthropic models or if Google Cloud Platform (GCP) recognizes any revenue from training Gemini internally. Such undisclosed intricacies could impact the comparability among cloud vendors and cast doubt on the narrative of a widespread recovery in cloud workloads. Amidst a period of tepid economic growth and high inflation, some customers have trimmed their cloud spending, further emphasizing the need for transparency and clarity in revenue reporting.

Amidst these concerns, Microsoft stands out as an exception, with the company transparently disclosing that it does not account for any revenue from OpenAI training its GPT models on Azure’s cloud infrastructure. Despite inquiries, an Amazon spokesperson declined to confirm whether AWS revenue figures include cloud spending by Anthropic. The evolving landscape of cloud investments, AI startups, and revenue round tripping underscores the complexity of the tech industry and the need for market players to navigate these intricacies with caution.

As the tech sector continues to innovate and evolve, stakeholders must remain vigilant in scrutinizing the financial dynamics at play to ensure sustainable growth and uphold market integrity. The intertwining relationships between tech giants, AI startups, and cloud services underscore the necessity for transparent reporting and a deeper understanding of the mechanisms driving revenue in this dynamic ecosystem.