Upcoming earnings reports from major U.S. tech players hint at Microsoft’s(NASDAQ:MSFT) ascent in the cloud-computing realm, posing a formidable challenge to Amazon.com’s (NASDAQ:AMZN) market leadership. Businesses are increasingly drawn to Microsoft’s offerings, lured by a suite of innovative AI features powered by OpenAI’s technology.
Microsoft, headquartered in Redmond, Washington, has taken the lead in AI services, launching offerings such as Copilot, a suite of generative AI tools integrated into its business applications. This strategic move, introduced in November at a monthly fee of $30, has positioned Microsoft ahead of competitors like Amazon and Google-parent Alphabet.
Investors keenly await Microsoft’s earnings report on Thursday, which is anticipated to shed light on AI adoption trends and potentially influence technology stocks’ performance amid recent market fluctuations driven by U.S. interest rate concerns.
Analysts predict Microsoft, now the world’s most valuable company after surpassing Apple (NASDAQ:AAPL)earlier this year, to showcase the impact of its substantial investments in generative AI on Azure, its cloud-computing platform. Rishi Jaluria from RBC Capital Markets anticipates Microsoft to gain ground against Amazon, benefiting from a positive “halo effect” surrounding its AI strategy.
In the first quarter of 2024, Microsoft’s revenue is expected to have surged by 15%, while Alphabet’s is projected to have grown by 12.6%, marking the second-highest growth rate in nearly two years. Meanwhile, Amazon’s revenue growth could lag at 11.9%, its weakest performance in three quarters.
Azure, housed within Microsoft’s Intelligent Cloud division, is estimated to have expanded by 28.9% in the January-to-March period, outpacing Amazon Web Service’s estimated growth of 14.9% and Google Cloud’s 25%, according to Visible Alpha and LSEG data.
Analyst Angelo Zino of CFRA Research suggests that up to 8 percentage points of Azure’s growth could be attributed to AI services. However, the full impact of AI adoption is expected to materialize in the coming years, with Morgan Stanley projecting a $5 billion revenue contribution from Copilot alone in Microsoft’s fiscal 2025.
While Alphabet (NASDAQ:GOOG) shares have surged this year on the back of optimism surrounding its AI initiatives, analysts caution that Google Cloud may take longer to reap the benefits of AI integration. Despite Google’s array of AI features within Workspace apps, powered by its Gemini model, monetization efforts may unfold gradually.
In contrast, Amazon’s AI strategy, though less overt, is quietly integrated into AWS following its significant investment in OpenAI-competitor Anthropic. Analysts remain bullish on Amazon’s long-term prospects, expecting it to bridge the AI gap with Microsoft in the coming years.
