Microsoft’s AI Push May Narrow the Cloud Computing Gap with Amazon
Microsoft’s upcoming quarterly reports may reveal that the company is closing in on Amazon.com, the current leader in the cloud-computing market. As more businesses adopt Microsoft’s services, attracted by its suite of generative AI features powered by OpenAI’s technology, this trend is emerging.
Microsoft, headquartered in Redmond, Washington, has surpassed competitors such as Amazon and Google-parent Alphabet in introducing AI services to the market. These services include Copilot, a set of generative AI tools integrated into Microsoft’s business applications, which was launched in November for a monthly subscription fee of $30.
Microsoft’s earnings, set to be released on Thursday, will serve as an indicator of AI adoption and could influence the trajectory of technology stocks, which have experienced a slowdown in the market rally amid concerns about prolonged high interest rates in the United States.
Wall Street analysts anticipate that Microsoft, which earlier this year overtook Apple as the world’s most valuable company, will report that its significant investments in generative AI have attracted clients to its Azure cloud-computing service.
Rishi Jaluria of RBC Capital Markets believes that “Azure is benefiting from a halo effect around Microsoft’s AI strategy” and anticipates that Microsoft will capture market share from Amazon. Jaluria also suggests that cloud providers may generally benefit from indicators of stability in technology spending, which has been under pressure due to high interest rates and economic uncertainty.
Estimates predict 15% revenue growth for Microsoft and 12.6% for Alphabet in the first three months of 2023, marking their second-highest growth rates in nearly two years. Amazon’s revenue is projected to rise by 11.9%, the lowest increase in three quarters. According to Visible Alpha estimates, Azure, a component of Microsoft’s Intelligent Cloud unit, is expected to have grown by 28.9% between January and March. This contrasts with anticipated growth rates of 14.9% for Amazon Web Services and 25% for Google Cloud, the third-largest cloud provider, according to LSEG data.
Alphabet, the parent company of Google, will disclose its earnings on Thursday, while Amazon will follow suit on April 30. Angelo Zino, an analyst at CFRA Research, estimates that up to 8 percentage points of Azure’s growth could be attributed to AI services.
Despite the expected growth, the full impact of AI is projected to materialize in the coming years. Morgan Stanley analysts forecast a $5 billion revenue contribution from Copilot in Microsoft’s fiscal 2025, commencing in July.
“Broader elements of the generative AI story (like 365 Copilot) likely need more time to develop and work through enterprise purchasing cycles,” Morgan Stanley stated earlier this month.
Google AI Gains May Take Longer
Although Alphabet shares have gained over 13% year-to-date and recently reached a record high, driven by optimism surrounding its AI initiatives such as the Gemini models, analysts suggest that the company is proceeding cautiously in monetizing this technology. As a result, Google Cloud may take longer to fully benefit from AI integration.
Within Workspace productivity applications, Google offers an array of AI features supported by its Gemini large language model for a monthly fee of up to $30 per user. Earlier this month, it introduced two add-on packages for $10 each, providing AI-powered meeting notes and summaries, as well as enhanced security features.
“Our checks at Google Cloud Next conference showed high interest levels and abundant innovation, but no rush to turn AI pilots into production apps,” remarked Jefferies analysts, predicting a more significant impact in 2025.
Amazon has not disclosed any major AI developments but is incorporating the technology into AWS through its $4 billion investment in OpenAI competitor Anthropic.
“Microsoft has gained a lot of ground last year based on its AI prominence, but AWS is still a much bigger business and we expect Amazon to catch up to those capabilities over the next couple of years,” said Gil Luria, an analyst at D.A. Davidson & Co.
