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The Story: Wall Street is beginning to grow impatient wondering when the AI tools made by Big Tech companies will turn a profit.

On Tuesday, both Microsoft and Google reported earnings on their cloud businesses. Despite Google surpassing earnings estimates overall, its Cloud division underperformed—this appears to have tanked the company’s stock.

Since Tuesday, Alphabet stock has fallen nearly 12%, its biggest dip since March of 2020.

The underperformance of Google Cloud can be attributed to customers spending less, at least according to Ruth Porat, Alphabet’s CFO. She explained that the numbers represent, “the impact of customer optimization efforts.” Google Cloud reported $8.41 billion in quarterly revenue, just missing analyst estimates of $8.64 billion.

Microsoft’s earnings report, on the other hand, seemed to sit with investors much better than Alphabet’s. Earnings beat analyst estimates for its cloud computing platform, Microsoft Azure, and on Tuesday, Microsoft stock rose over 3%.

The company reported $56.5 billion in sales in July, August, and September, a 13% increase with profits up 27%. However, since Tuesday, the stock has already fallen back down 3% to its original price.

Microsoft told investors that they should not expect substantial results from its AI investments until at least early 2024 once some of its new products become available to more customers.

The Expert Take: TJ Nahigian, co-founder and managing partner at Base10 Partners, says there are three ways to monetize generative AI:

1. Platform/Model Layer: LLMs like OpenAI’s ChatGPT

2. Infrastructure Layer: Cloud hosting like Microsoft Azure

3. Application Layer: Midjourney or DALL-E

But: “It may take some time to actually see the value of AI,” according to Nahigian.