AI determines the outcome? Microsoft's Azure cloud is "quickly catching up" to Amazon's AWS in terms of scale.

AI technology is disrupting the cloud computing landscape.

According to media reports, analysis data shows that the scale of Microsoft Azure's cloud business has reached three-quarters of the scale of Amazon AWS's cloud business, while five years ago, Azure's scale was only half of AWS's.

Thanks to the AI boom and collaboration with Open AI, Microsoft Azure's latest quarterly revenue increased by 30%, while Amazon AWS's revenue growth rate was 13%, less than half of Azure's.

The integration of artificial intelligence may be Azure's competitive advantage.

In early 2023, Microsoft announced the integration of ChatGPT into Azure cloud services. It is reported that Microsoft has been continuously investing in GPUs in its data centers so that customers can run AI models, including GPT-4, in Azure.

Jamin Ball, a partner at investment firm Altimeter Capital, said that some companies may prioritize Azure, partly due to the excitement of the AI concept, and partly due to Microsoft's close collaboration with OpenAI, which gives it a leading position in the AI field.

Currently, many companies have added generative AI capabilities to their products. In a recent earnings call, Microsoft CEO Nadella said, "We now have 53,000 Azure AI customers."

Compared to Microsoft, Amazon was a step behind in integrating AI into its cloud business. Three months after Microsoft's announcement, Amazon's cloud division announced the launch of a new generative AI tool, which currently supports various large models in addition to its own supported Anthropic models.

Amazon CEO Andy Jassy said in a recent earnings call, "Generative AI will eventually bring billions of dollars in revenue to Amazon in the coming years."

However, for now, Azure's growth rate is much faster.

Cloud business has become an important part of Microsoft, accounting for about 29% of the company's total revenue. According to data, Microsoft's cloud business gross margin has expanded from 42% in 2016 to 72% in the latest quarter. Cloud business revenue mainly comes from commercial Office subscriptions, LinkedIn and Dynamics 365 enterprise software, and the commercial part of Azure cloud business.

Reportedly, in addition to providing basic computing and storage, Microsoft also offers cloud services to users, including high-margin databases and monitoring tools. Nadella said that the next step in cloud optimization will start with improvements in power, cooling, data center design, chips, and software. Loop Capital analyst Yun Kim stated in a report that the revenue growth of Azure is expected to accelerate in the future.

Kim wrote:

"We anticipate that with the introduction of new cloud deployments and the influx of new workloads from generative AI, the Azure business will experience accelerated growth in the next fiscal year or the second half of the year."