Microsoft’s Cloud Platform Fuels Revenue Growth

Microsoft’s Azure cloud business, used by several leading retailers in Australia, was the main growth driver for the company as it reported better-than-expected earnings on Wednesday.

Revenue from its fastest-growing division increased by 22 per cent to $38.9 billion (A$59.19 billion), and Azure now had around 39,000 customers globally, up 80 per cent year-over-year.

The company had AI data centres in over 60 regions around the world and Azure-OpenAI usage had reportedly more than doubled over the past six months.

However, Microsoft has forecast slower quarterly cloud revenue growth, as it struggles to ensure that the pace at which more data centres become operational matches the growth demand for AI services.

Sales from Azure cloud-computing business will rise 31 per cent to 32 per cent in the current period, Microsoft executives said this week.

Chief Financial Officer Amy Hood told analysts on a call that some data center capacity the company had been counting on didn’t materialise, according to Bloomberg.

“We are in short supply, and so we remain focused on getting that into a more balanced position,” said Hood.

Towards the end of last year, Microsoft said that it will invest A$5 billion in expanding its hyperscale cloud computing and AI infrastructure in Australia over the next two years – the single largest investment in its 40-year history in the country.

That investment, it said, would grow Microsoft’s local data centre footprint from 20 sites to a total of 29 spread across Canberra, Melbourne and Sydney.

Microsoft’s Australia digital infrastructure investment was expected to increase its computing capacity by approximately 250 per cent. That in turn would enable the company to meet the growing demand for cloud computing services, which are expected to almost double from A$12.2 billion in 2022 to A$22.4 billion in 2026.

The company noted that generative AI – if adopted at an accelerated pace – could contribute as much as A$115 billion a year to Australia’s economy by 2030.

In the second quarter, Microsoft’s line item for “other income and expense,” where it accounts for investments, will show a loss of about $1.5 billion (A$2.28 billion), mostly due to Microsoft’s share of the expected loss from OpenAI, CFO Hood said on the call. Microsoft, which has pumped $13.75 billion (A$20.92 billion) into the ChatGPT maker, is OpenAI’s largest shareholder.

As is the case with Microsoft, Google too is seeing its cloud business drive growth. In figures released this week, sales in Google’s cloud division rose to $11.4 billion (A$17.37 billion), compared to the $10.8 billion (A$16.46 billion) analysts projected. Google currently rails Amazon and Microsoft in the cloud market.