Wall Street Fidgets Over AI Revenue Loops: Cloud Titans Amazon and Google in the Spotlight
Staff Editor **The Cloud Revenue Conundrum: Are AI Investments Masking True Growth?**
Wall Street is increasingly skeptical about the reported growth in cloud revenues among major tech giants. The swelling numbers, buoyed by substantial investments in artificial intelligence (AI) startups, have prompted analysts to question whether this growth is genuinely reflective of market demand or merely a result of strategic financial maneuvers. The concept causing this unease is known as “revenue round-tripping.”
In essence, revenue round-tripping occurs when a tech behemoth invests in an AI startup, only for that startup to spend a significant chunk of its newly acquired capital on the tech giant’s cloud services. This creates an illusion of organic growth in cloud revenue, even though the funds are just circulating within the ecosystem. Essentially, it’s like giving a loan to your friend and then having them pay you to mow their lawn. The money stays in the circle, but it certainly looks like you’re raking it in.
A case in point is Amazon Web Services (AWS), which recently poured $4 billion into Anthropic, an AI startup. As part of the deal, Anthropic committed to making AWS its “primary cloud provider.” This sets off alarm bells for some analysts who are now wondering if AWS’s impressive revenue figures are bolstered by such arrangements. Google’s cloud revenue has similarly benefited from its investment in AI ventures, as has Microsoft’s, with its significant stake in OpenAI, and Oracle’s involvement with Cohere.
These concerns were first spotlighted by Business Insider last year, raising eyebrows among high-profile investors. Their worry is that these deals might be artificially inflating cloud revenue numbers, thus distorting the comparability between different cloud vendors. If revenue growth is being padded by these intra-ecosystem transactions, the narrative of a broad recovery in cloud workloads might be overly optimistic.
Adding to the complexity is the slowing pace of cloud spending growth in recent years. With a sluggish economy and rampant inflation, many customers are tightening their belts, making genuine growth in cloud services harder to come by. If the perceived recovery is significantly fueled by revenue round-tripping, then the picture is not as rosy as it appears.
Interestingly, Microsoft might be an outlier in this scenario. According to RBC, Microsoft has disclosed that it does not count revenue from OpenAI’s use of Azure cloud infrastructure for training its GPT models. This transparency could lend more credibility to Microsoft’s reported cloud revenue figures, setting it apart from its competitors.
While an Amazon spokesperson declined to clarify whether AWS’s revenue includes cloud spending by Anthropic, this silence only adds to the speculation. As analysts and investors continue to scrutinize these financial gymnastics, the debate over the authenticity of cloud revenue growth is far from over. In the end, the truth of the matter may significantly impact investor confidence and shape the future strategies of tech giants navigating the complex landscape of cloud services and AI investments.
