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What Microsoft’s financial disclosures reveal about Azure’s market position
- Microsoft has made an accounting change that removed certain mature, slower growth revenue streams from Azure, leading to an increase in growth rates for AI services contributions within Azure.
- Investors are excited about the increased growth rates and AI contribution within Azure. But the accounting change reduces the size of the Azure business and its resulting revenue market share.
- Leaked court documents from 2023 revealed that Microsoft’s infrastructure-as-a-service business was significantly lower than previously thought. This reduced Azure’s overall revenue, leading to an increase in AWS’ lead.
- New estimates show that Azure is the fastest-growing of the big four clouds, approaching $70B in CY 2024 with 33% market share among the Big Four.
- Microsoft has a commanding lead with respect to account penetration of AI, with Azure OpenAI Service, the Azure AI Studio, and the Azure ML service outpacing all others.
- Microsoft is laying down the gauntlet on AI investments, in effect, forcing other vendors to disclose their AI revenue. The AI guidance is a key indicator of interest for investors and customers.
- Investors will be looking at earnings season among the big three clouds (Amazon, Google, and Microsoft).
- Microsoft’s reporting highlights its AI contribution to Azure and its accelerated growth rates, which experts believe will continue to be an increasingly important metric in the coming quarters.
- Microsoft's CFO, Amy Hood, stated that Azure growth included eight points from AI services where demand remained higher than available capacity. How this statement maps to Azure's AI contribution is still being analyzed.
- The content is not investment advice and should not be used as the basis for any investment decision. No one else has any editorial control over or advance viewing of what’s published.
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