Microsoft Narrows the Cloud-Computing Gap
The cloud-computing arena is witnessing a significant shift as Microsoft appears to be narrowing the gap with market leader Amazon.com. The upcoming quarterly reports are highly anticipated, with predictions suggesting that Microsoft’s strategic integration of generative AI features, powered by OpenAI’s technology, is drawing more businesses towards its services.
Microsoft has taken a lead over its competitors, Amazon and Alphabet, by launching AI services such as Copilot, which integrates generative AI tools into Microsoft’s business applications. This innovation, priced at $30 a month since its November rollout, is expected to reflect positively in Microsoft’s earnings report on Thursday. The report is not only a barometer for AI adoption but could also sway the tech stock market, which has seen a recent rally slow down due to concerns over persistent high US interest rates.
Wall Street analysts are keenly watching Microsoft, which surpassed Apple as the world’s most valuable company earlier this year, to see if its multi-billion-dollar investment in generative AI is paying off by attracting clients to its Azure cloud-computing service. “Azure is benefiting from a halo effect around Microsoft’s AI strategy,” noted RBC Capital Markets analyst Rishi Jaluria, who anticipates a shift in market share from Amazon to Microsoft.
Cloud providers are expected to see broad benefits as technology spending shows signs of stabilization despite economic headwinds. For the first quarter of 2024, projections indicate that Microsoft’s revenue could have increased by 15%, with Alphabet following at 12.6%—both marking their second-highest growth rate in nearly two years. In contrast, Amazon’s revenue growth is estimated at 11.9%, which would be its lowest in three quarters.
Azure’s growth is particularly impressive, with forecasts from Visible Alpha suggesting a 28.9% increase for the January-to-March period. This outpaces the growth of Amazon Web Services and Google Cloud, which are estimated at 14.9% and 25% respectively. CFRA Research analyst Angelo Zino estimates that AI services could contribute up to 8 percentage points of Azure’s growth.
While immediate gains from AI are notable, analysts from Morgan Stanley predict an even more substantial impact in the coming years, with a potential $5 billion revenue contribution from Copilot in Microsoft’s fiscal 2025.
Alphabet has seen over a 13% increase in shares this year, fueled by optimism over its AI initiatives, including the Gemini models. However, analysts suggest that Google Cloud’s integration of AI may take longer to monetize. Google recently introduced new AI features within its Workspace productivity apps and announced additional packages for AI meeting notes and security enhancements.
Amazon has yet to make a major AI announcement but is steadily incorporating the technology into AWS, leveraging its investment in Anthropic, an OpenAI competitor. Analyst Gil Luria from D.A. Davidson and Co acknowledges Microsoft’s recent advancements but believes that “AWS is still a much bigger business and we expect Amazon to catch up to those capabilities over the next couple of years.”
