Why the Cloud is Murky for Microsoft CEO Satya Nadella
Microsoft’s enormous investment in artificial intelligence technology is paying off, with first-quarter revenue for the conglomerate growing 16% to US$65.6bn.
And revenue in its Azure cloud division rose even faster to US$38.9bn - a 22% rise from one year ago.
Azure, Microsoft’s fastest-growing division, has received billions of dollars of investment as the company focuses attention on artificial intelligence.
Microsoft CEO Satya Nadella said Azure now had 39,000 customers, up 80% year on year. The company has AI data centres in over 60 regions around the world and usage of its Azure-powered OpenAI generative AI platform had more than doubled over the past six months, he added.
Like cloud rivals Google and Amazon, Microsoft has ramped up spending to construct and rent the data centres required to fuel power-hungry AI services.
Tripling data-centre capacity
Indeed, Microsoft is so bullish about its cloud business that it plans to triple its data centre capacity by 1.5GW by July 2025.
Recent developments announced publicly by Microsoft include a US$2.9bn investment in data centre infrastructure in Japan and a US$3.16bn spending spree in Britain. The latter will include a new data centre campus being planned for the site of the Eggborough power station in North Yorkshire.
Corporations are hungry for Microsoft’s data centre capacity as they develop their own AI applications, buoying demand for its Azure business.
Expanding opportunity
Microsoft has even gone so far as to buy nuclear power from a restarted reactor at the notorious Three Mile Island in Pennsylvania to ensure it has sufficient electricity to meet its growing needs. Under the deal, Microsoft plans to purchase the plant’s entire output of electricity over the next 20 years.
"We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage,” Microsoft chairman and CEO Satya Nadella, said in a first-quarter earning press release.
“AI-driven transformation is changing work, work artefacts, and workflow across every role, function, and business process,” Nadella said.
On an earnings call, Nadella said Microsoft’s AI business was “on track to surpass an annual run-rate [rough estimate of yearly earnings] of US$10bn next quarter, which will make it the fastest growing business in our history to reach this milestone”.
Gathering storm
Given the power-hungry demands and rocketing income, why then are clouds gathering over Microsoft’s cloud-computing business?
The answer is that it can’t meet the insatiable demand for its data centres quickly enough.
Microsoft has forecast slower quarterly cloud revenue growth, reflecting the company’s struggle to bring data centres online fast enough to keep up with demand for its artificial intelligence division.
Chief Financial Officer Amy Hood told analysts that some data centre capacity Microsoft had been counting on for its push into artificial intelligence had not materialised. That will constrain revenue growth in the Azure business during the current quarter, which ends in December, she said.
In addition to Azure - and its half share of Gen AI platform OpenAi - Microsoft also owns social network LinkedIn, gaming system Xbox, as well as its ubiquitous Windows operating system.
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