HomeAutomation/AIUpdate: Demand for cloud continues to soften for Microsoft

    Update: Demand for cloud continues to soften for Microsoft


    Never mind, the next big platform is AI and the software giant just invested $10 billion

    Slowing demand for cloud proved a drag on Microsoft’s Q4 earnings, when for so long Azure drove Microsoft’s growth.  Growth will probably only be up 3% (to 38% before adjustments for currency fluctuations and 31% after them) year on year, according to a forecast for the final quarter of last year ahead of the official Q4 2022 earnings report.

    This was a little better than market expectations: Microsoft now expects to have revenue of $50 billion to $51.5 billion in the final quarter of last year.

    In Q3, Microsoft missed analysts’ growth expectations and CEO Satya Nadella told an analyst meeting, “In this particular period, I think we are going to optimise for long-term customer loyalty,” quoted in the Financial Times.

    Now he acknowledges that customers are optimising the contracts they have in place already rather than looking to increase spending. Last week the company said it would fire 10,000 staff, almost 5% of its workforce, in the face of an adverse economic climate.

    Firing tens of thousands of employees is the current fashion in Big Tech but, as a number of commentators have pointed out, the companies’ headcount still remains way above where they were pre-COVID.

    Cloud growth might be slowing, but it is still performing way better than Microsoft’s software business, which is suffering as demand for PCs plummet. Overall, its operating profit margin is expected to fall by 1%.

    Still, earlier in the week Microsoft said it will make a “multibillion-dollar investment in OpenAI, the company behind the ChatGPT bot. Reportedly, OpenAI was seeking $10 billion from Microsoft on the premise it is worth $29 billion, but details of the deal are not public.

    Nadella said in a corporate blog: “We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research. In this next phase of our partnership, developers and organisations across industries will have access to the best AI infrastructure, models and toolchain with Azure to build and run their applications.”

    There are lots of upsides to this deal. First, Microsoft is the exclusive cloud provider to the most famous AI company on the planet, even though it’s still fledging. Second, it’s now got a big stake in the most valuable AI start-up which is having to trouble attracting investment, downturn or no. Third Microsoft can add productivity tools to its Office software product suite make AI tools, models and infrastructure available through its cloud offer.

    Or as Nadella put it in his comments on Microsoft’s December numbers: “We fundamentally believe the next platform wave will be AI”.

    According to the New York Times, Google’s founders, Larry Page and Sergey Brin, have returned to the fold (having left Google in 2019) to support the monolith’s AI strategy. It was rumoured that ChatGPT is causing sleepless nights at the Schloss Google. Although it looks like if the US Department of Justice has its way, the monolith could be broken up. The DoJ launched an anti-trust lawsuit against Google yesterday.