Microsoft is on the brink of reporting its best quarterly growth in nearly two years, with an expected 15.8% increase in revenue.
Microsoft was fast to adapt to generative AI by allying with industry leader OpenAI, something which is propelling it to the forefront of the market with a staggering $3 trillion valuation, edging Apple for the title of the most valuable company.
Today, Microsoft’s investment in OpenAI stands at a colossal $10 billion, setting a high bar for AI expectations in the coming year.
Microsoft’s involvement cemented OpenAI’s dominance in the generative AI market, supplying it with cloud resources to deploy and host its models.
This reflects an immense appetite for AI investments, something that tech firms dominated in 2023 at the expense of venture capitalists, who seemingly struggled to clinch key deals.
Morgan Stanley’s Keith Weiss highlighted the tech community’s focus on AI, noting, “Gen AI has emerged as the top priority for (chief information officers) and Microsoft is uniquely well positioned, with the majority of CIOs expecting to use a Microsoft AI product in the next 12 months.”
In addition to gains fueled by involvement with OpenAI, Microsoft has created its own innovations enabled by OpenAI’s GPT models, including the Copilot project for its Microsoft 365 suite.
Copilot will also become deeply integrated into Windows devices, with some getting a dedicated Copilot button.
Analysts are further optimistic about the growth potential in Microsoft’s cloud sector, particularly Azure, due to the anticipated increase in demand for AI services.
Jefferies analyst Brent Thill observed, “We expect AI contribution to Azure growth to increase, with our checks pointing to strong demand for Azure AI services.”
He also downplayed any significant impact from OpenAI’s situation on Azure’s performance in the near term.
Azure’s competition with other cloud services like Amazon’s AWS and Google Cloud is intensifying, but Microsoft’s investments in AI are carving out a larger market share for Azure.
The company’s own projections for Azure’s growth are ambitious, aiming for a 26% to 27% increase in the second quarter.
To support its cloud sector, Microsoft is developing the Azure Maia 100 and Microsoft Azure Cobalt 100 chips designed for AI, joining Amazon and Google, which embarked on similar initiatives last year.
Despite some challenges, including layoffs affecting about 8% of the Microsoft Gaming division, the company’s stock performance remains robust, with a 57% increase last year.
This growth contributes to the broader tech sector’s rally.