Upcoming quarterly results from U.S. tech giants may demonstrate that Microsoft is closing the gap on Amazon.com in the cloud-computing market. Several businesses have switched to Microsoft’s services due to its suite of generative AI capabilities, powered by OpenAI’s technology. Microsoft, headquartered in Redmond, Washington, has outpaced rivals Amazon and Google-owned Alphabet in bringing AI services to the market. One such service is Copilot, a collection of generative AI tools that integrate with Microsoft’s business applications, first introduced in November for $30 monthly. Microsoft’s earnings report on Thursday will serve as an indicator of AI adoption and could influence the movement of technology stocks, which have recently experienced a rally that has subsided this month due to concerns about prolonged elevated interest rates in the U.S. Wall Street analysts expect Microsoft, which surpassed Apple as the world’s most valuable firm earlier this year, to report that its billion-dollar investments in generative AI have enticed clients to its Azure cloud-computing service. “Azure is benefiting from a halo effect around Microsoft’s AI strategy,” said Rishi Jaluria of RBC Capital Markets, who anticipates Microsoft gaining market share from Amazon. Jaluria further stated that cloud providers should generally benefit from indications of stabilization in technology spending, which has been impacted by high-interest rates and economic uncertainty. Microsoft’s revenue is expected to have grown by 15% in the first three months of 2024, while Alphabet’s is projected to have increased by 12.6%, their second-highest growth rate in almost two years. Amazon’s revenue, on the other hand, could see an 11.9% rise, its weakest performance in three quarters. According to estimates from Visible Alpha, Azure, which falls under Microsoft’s Intelligent Cloud unit, is expected to have expanded by 28.9% between January and March. This contrasts with the estimated growth of 14.9% for Amazon Web Service and 25% for Google Cloud, the third-largest cloud provider, as per LSEG data. Google-parent Alphabet is set to release earnings on Thursday, followed by Amazon on April 30. Angelo Zino, an analyst at CFRA Research, estimated that AI services could account for up to 8 percentage points of Azure’s growth. However, a significant portion of the AI-driven boost is anticipated to materialize next year, with Morgan Stanley analysts predicting a $5 billion revenue contribution from Copilot in Microsoft’s fiscal 2025, beginning in July. “Broader aspects of the generative AI narrative (such as 365 Copilot) will likely require more time to mature and navigate enterprise purchasing cycles,” Morgan Stanley stated earlier this month. While Alphabet shares have gained over 13% year-to-date and recently reached a record high due to optimism surrounding its AI initiatives such as the Gemini models, analysts generally agree that the company is not rushing to monetize the technology and that it may take some time for Google Cloud to reap the benefits of AI integration. Google provides various AI capabilities within Workspace productivity apps, powered by its large language model Gemini, for up to $30 per user per month. Earlier this month, it announced two add-on packages for $10 each, offering AI meeting notes and summaries as well as enhanced security features. “Our checks at the Google Cloud Next conference revealed high levels of interest and considerable innovation, but no urgency to transition AI pilots into production applications,” said Jefferies analysts, anticipating a more substantial impact in 2025. Amazon has yet to make any major AI announcements, but it is integrating the technology into AWS through its $4 billion investment in Anthropic, a competitor to OpenAI. “Microsoft has gained significant traction over the past year due to its AI prominence, but AWS is still a substantially larger operation, and we expect Amazon to catch up in capabilities over the next few years,” said Gil Luria, an analyst at D.A. Davidson and Co.
Microsoft Closing Gap on Amazon in Cloud Computing with Generative AI
