Microsoft CEO Satya Nadella attended the World Economic Forum in Davos, Switzerland on January 16, 2024.
Chris Ratcliffe | Bloomberg | Getty Images
Amazon Web Services remains the cloud leader. But Microsoft is rapidly closing the gap.
Microsoft doesn't disclose sales figures for its Azure cloud infrastructure, but analyst statistics show that five years ago, the company was half the size of AWS. Analysts estimate the company is now about three-quarters the size of its top rivals.
Part of Microsoft's recent momentum is due to artificial intelligence.
Amy Hood, the company's head of finance, said during Microsoft's January 30 earnings call that AI was responsible for the most recent quarter's revenue increase in Azure and cloud services, up 6 points from 3 points in the previous quarter. He said he did.
In total, Azure's revenue increased 30% this quarter. In comparison, AWS grew by 13% year over year.
Microsoft has been adding graphics processing units (GPUs) to its data centers to enable clients to run AI models on Azure. This includes GPT-4, a large-scale language model that enables text conversations with OpenAI's ChatGPT chatbot. Many companies are adding similar generative AI capabilities to their products.
“We now have 53,000 Azure AI customers,” CEO Satya Nadella told analysts on an earnings call.
Jamin Ball, a partner at investment firm Altimeter Capital, said the excitement around AI and Microsoft's perceived market lead due to its close relationship with OpenAI has led some companies to He said that it seems that he is considering Azure.
It took AWS several months to introduce a model that could compete with GPT-4. The company currently offers a number of models in addition to its own, including one from Amazon-backed Anthropic. During Amazon's Q4 earnings call, Amazon CEO Andy Jassy said that AWS offers “the broadest collection of compute instances powered by Nvidia chips” and that customers including Airbnb and Snap have He said it uses an AI processor.
An AWS spokesperson did not respond to a request for comment.
At the moment, Azure is growing much faster.
And cloud infrastructure has become a big part of Microsoft, accounting for about 29% of the company's total revenue and contributing significantly to its bottom line.
Microsoft, which recently overtook Apple to become the world's most valuable publicly traded company, reported net income of about $83 billion in 2023, up from $67 billion a year earlier. The intelligent cloud division, which includes Azure, generated 46% of Microsoft's total operating profit, up from about 27% in 2016.
In addition to providing basic computing and storage, Microsoft offers a variety of services for developers, including high-margin databases and monitoring tools.
Gross margins for Microsoft's cloud group expanded from 42% in 2016 to 72% in the most recent quarter. This division includes commercial Office subscriptions, the commercial portion of LinkedIn, Dynamics 365 enterprise software, and Azure. Efficiency will increase through improvements in power, cooling, data center design, chips and software, Hood said.
Loop Capital analyst Yoon Kim said in a note that Azure's revenue growth could accelerate.
“We expect the company's Azure business to accelerate starting next fiscal year (or C2H) due to significantly increased tailwinds from new workloads from both new cloud adoptions and GenAI initiatives,” he said.
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