googleThomas Kurian, head of cloud at Microsoft, said the company’s existing customers were already paying “approximately 50% more” than they planned to spend on the company’s products, which fueled the company’s breakneck cloud growth in the second quarter.
“Our existing customers will spend more when they sign a contract with us,” Kurian told CNBC’s Jim Cramer on Thursday. “They’re spending about 50% more than they committed. So it comes down to our strength in differentiating our product portfolio, executing go-to-market execution. That’s reflected in both sales and operating income growth.”
Kurian’s comments came after Google’s parent company Alphabet on Wednesday posted better-than-expected second-quarter revenue, helped by 82% year-over-year growth in its cloud business.
Demand for the company’s cloud services is so strong that the company plans to ask third-party providers to provide additional capacity. That pushed up the neocloud provider’s stock price. coreweave and Nevius Higher.
Kurian said the move was necessary even if it hurt margins, saying it would allow Google to capture that demand, and those customers tend to spend more on the company’s other services.
“So for us, in the short term, we’re looking to rent some capacity for a few quarters,” Kurian said. “This allows us to bring in customers and provide a bridge until enough capacity is available. Then over time, the impact increases even more and the return on investment makes sense for us.”
Alphabet shares plunged more than 7% on Thursday after the company raised its capital spending forecast for this year to up to $205 billion, worrying investors nervous about ballooning artificial intelligence budgets.
The company said it expects spending to be between $195 billion and $205 billion in 2026, up from the $180 billion to $190 billion forecast it provided last quarter. Capital spending reached $44.9 billion in the second quarter, with most of the spending going to AI infrastructure.
Tech companies are burning through cash to cover spending on AI infrastructure while trying to reassure Wall Street that their investments will pay off.
Before Alphabet’s second-quarter report was released, the tech giant was expected to spend about $725 billion on AI efforts this year. This total could rise further as more of Alphabet’s peers report quarterly earnings in the coming days. Amazon, Microsoft and Meta are expected to announce their results next week.
Kurian defended the company’s “very disciplined” capital spending and said companies are seeing real benefits from leveraging Google’s AI solutions.
“For example, Macy’s implemented our AI system and noticed improvements in visible shopping cart size,” he said. “We have seen Macquarie Bank save significant processing time by automating many of the workflows within the organization.”
