Google, the largest US Hyperscaler by revenue, reported Search and Social results that declined Y/Y for the first time while IaaS revenue grew nearly $1B Y/Y. We were a little surprised at Facebook’s robust growth compared to Google’s. Google’s results were in line with our overall expectations for Search and Social decline in 2020 as consumers and advertisers resetting to the new normal. We expect more targeted ads throughout 2020 as consumers live and work from home, and many students live and study from home during the fall semester.
Google has made big bets and investments in IaaS, and we continue to see AI as an area where they will attack AWS and Azure. It is unclear if IaaS is compatible with the culture withing Google, which could put an upper limit on the verticals and companies Google can sell to. During 1H20, Google was surpassed by Amazon in our supply chain interviews as the company with the most influence on the technological direction of industry-wide future products.
We see a passing of the guard as AWS CAPEX is now much higher than Google’s, and the supply chain sees Amazon as more significant revenue potential. We expect this change to reverberate throughout the supply chain, primarily based on how each Cloud provider uses custom or semi-custom semiconductors in their data center infrastructure. This is something we are happy to talk about as we prepare our 2Q20 results and our fall readouts.
— Alan Weckel, Founding Analyst, 650 Group