Sunday, 3 March 2024

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Microsoft AI growth helping Azure cloud chip away at Amazon’s lead

AWS growth and margin expansion will drive Amazon's stock higher in 2024: Evercore's Mark Mahaney

Microsoft CEO Satya Nadella appears at the World Economic Forum in Davos, Switzerland, on Jan. 16, 2024.

Chris Ratcliffe | Bloomberg | Getty Images

Amazon Web Services is still the cloud leader. But Microsoft is quickly closing the gap.

While Microsoft doesn’t disclose revenue figures for its Azure cloud infrastructure, analyst figures suggest that five years ago it was half as big as AWS. Now, it’s about three-quarters the size of its top rival, analysts estimate.

Part of Microsoft’s recent momentum is because of artificial intelligence.

Amy Hood, the company’s finance chief, said on Microsoft’s Jan. 30 earnings call that 6 points of revenue growth in the Azure and cloud services division came from AI in the latest period, up from 3 points the prior quarter.

In total, revenue at Azure increased 30% in the quarter, compared with 13% year-over-year growth at AWS.

Microsoft has been adding graphics processing units (GPUs) to its data centers so that clients can run AI models in Azure. That includes GPT-4, a large language model that enables text conversations with OpenAI’s ChatGPT chatbot. Many businesses have been adding similar generative AI capabilities to their products.

“We now have 53,000 Azure AI customers,” CEO Satya Nadella told analysts on the company’s earnings call.

Jamin Ball, partner at investment firm Altimeter Capital, said it seems that some companies are considering Azure specifically because of the excitement surrounding AI and Microsoft’s perceived lead in the market due to its close relationship with OpenAI.

AWS took months to come out with a model that could go up against GPT-4. The company is now offering a number of models in addition to its own, including one from Anthropic, which Amazon backed. On the company’s fourth-quarter earnings call, Amazon CEO Andy Jassy said that AWS offers “the most expansive collection of compute instances with Nvidia chips,” and that customers including Airbnb and Snap are using its homegrown AI processors.

An AWS spokesperson referred CNBC to Jassy’s comments from the earnings call, including that the company added more incremental revenue in the quarter than “any other cloud provider as far as we can tell.”

Jassy also said that generative AI is expected to “ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.”

As it stands now, Azure is growing much faster.

And as cloud infrastructure has become a bigger part of Microsoft, making up around 29% of the company’s total…

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