Powered by its traditional fiscal Q4 surge plus the explosive new market for Generative AI tools, Microsoft will almost certainly blow past $30 billion in quarterly cloud revenue for the first time when it releases Q4 numbers later this month.
Three months ago in Microsoft’s fiscal Q3 release, CEO Satya Nadella heralded “a new era of computing” made possible as “the world’s most-advanced AI models are coming together with the world’s most-universal user interface: natural language.”
And just last month, Microsoft CFO Amy Hood and CTO Kevin Scott — also the company’s executive vice-president of AI — talked about how enormous customer demand will make the company’s next-generation AI solutions “the fastest-growing $10-billion business in our history.”
To get a sense of what’s driving that booming customer demand, here’s the key comment from Hood during her June 10 “AI Discussion” with Scott for investors.
“Financial analysts will ask me, ‘Well, where does the revenue show up?’ ” Hood said.
“It really comes from two places, right? There’s the tools and services that customers will use to build AI apps and services. They’ll run the Azure OpenAI APIs, they’ll run on our Azure infrastructure. And then to your point, it’s going to be built into every Microsoft Cloud solution. Every one. So, whether it’s announced or not announced, whether it’s named Copilot or not, it’ll be that same aspect. There’ll be something that shows up that’s AI-enabled,” Hood said.
“And I think that’s the reason this’ll be our sort of — the next-generation AI business will be the fastest-growing $10 billion business in our history. I think I have that confidence because of the energy we’re seeing.”
Against that backdrop, here’s what I’m expecting when Microsoft discloses its fiscal Q4 results later this month for the quarter that ended June 30.
Total cloud revenue: Last quarter, Microsoft delivered superb performance in the cloud with revenue of $28.5 billion, up 22%. For Q4, I’m expecting Microsoft Cloud revenue to again grow by 22%, reaching $30.6 billion. That would be a superb achievement for a business of that size–and if anyone knows of any business in any industry with $30 billion in quarterly revenue growing 22%, please let me know!
Azure growth: For the past four quarters, revenue growth from Azure and “other cloud services” has declined from 40% to 35% to 31% to 27%. For fiscal Q4, I expect Microsoft will reverse that decline with Azure revenue up 28% on the strength of the AI services described by Hood above.
Cloud as a percentage of total revenue: About a year ago, cloud revenue reached 50% of Microsoft’s total, and I believe it will hit 57% for fiscal Q4. Last quarter, it was 54% ($28.5 billion in cloud revenue out of a total of $52.9 billion). This figure will begin to reflect the point Hood mentions above about Microsoft’s intentions to have GenAI “built into every Microsoft Cloud solution. Every one.”
Final Thought
Microsoft has been #1 on the Cloud Wars Top 10 list for the past four years. I moved them into that spot at a time when most analysts were adamant that AWS was the undisputed king of the cloud. My rationale was that while AWS is the clear leader in infrastructure, Microsoft’s vast cloud-software portfolio made it the top player in size and growth, and I believe that early claim has been borne out by the results.
With the GenAI revolution gathering speed, I believe Microsoft’s hold on the #1 spot will continue for some time.
Gain insight into the way Bob Evans builds and updates the Cloud Wars Top 10 ranking, as well as how C-suite executives use the list to inform strategic cloud purchase decisions. That’s available exclusively through the Acceleration Economy Cloud Wars Top 10 Course.
Gain insight into the way Bob Evans builds and updates the Cloud Wars Top 10 ranking, as well as how C-suite executives use the list to inform strategic cloud purchase decisions. That’s available exclusively through the Acceleration Economy Cloud Wars Top 10 Course.
