Manhattan-based cloud security startup Wiz has rejected Google’s $23 billion acquisition bid, with plans to reach $1 billion in annual recurring revenue before going public, according to CEO Assaf Rappaport. The collapse of the Google-Wiz deal leaves Google’s Cloud aiming to increase market share and tap into the demand for AI-driven services. With Microsoft Azure growing faster than AWS and Google Cloud, the failed deal takes away a potential growth pillar that might have boosted Google stock, despite Google forecasting faster growth for Google Cloud in April.
The collapse of the deal raises questions about Google Cloud’s AI cloud services strategy, the potential revenue growth that Wiz could have brought to Google Cloud, the reasons for the deal falling apart, and Google Cloud’s next steps to win a bigger share of the AI cloud services market. Google Cloud’s strategy needs to be clearer, with some of the company’s AI applications potentially boosting growth. Wiz could have helped boost Google Cloud’s revenue growth slightly, but the growth synergies were not as significant as other partnerships in the industry.
The deal fell apart due to fear of facing antitrust problems, with regulatory approval processes also playing a role in the decision. The Wiz team’s desire to remain independent, go public, and work on building cloud security capabilities also influenced the rejection of Google’s offer. Google Cloud’s strategy in the short term remains unclear, with a key challenge being to retain the generative AI talent the company has recruited at high costs.
Google Cloud’s market share lags behind that of AWS and Microsoft Azure, but the company experienced growth in the first quarter of 2024. Google Cloud’s revenue growth rate could surpass Azure’s, with Alphabet forecasting revenue to reach $12.5 billion in the fourth quarter of 2024. However, Google Cloud has struggled to retain AI talent, impacting its ability to innovate and develop new products.
Investors are looking for Google to report strong growth in the second quarter, with estimates indicating revenue and earnings per share growth. Google’s Cloud revenue and operating income estimates for the second quarter also show positive growth expectations. It remains to be seen when AI will start to generate revenue for Google’s Cloud and ad businesses, with analysts suggesting that material AI revenue is more likely in 2025-26. Despite challenges, Google could beat expectations in its second quarter report, benefiting investors in the search giant.
