Has Microsoft's "bad data" passed?

Microsoft's cloud business growth slows, but the outlook is bright.

On Wednesday, Microsoft announced its latest financial report, showing that its core cloud business Azure and other cloud services revenue grew by 31%, slowing from 33% in the third quarter, slightly below expectations, but future order volume surged by 67%.

Analysts stated that the surge in order volume indicates strong customer demand, especially in the AI sector, which may also signal that Microsoft's Azure cloud business will accelerate growth in the coming quarters, alleviating investor concerns.

Of course, analysts also cautioned that overemphasizing order volume data carries certain risks, as order volume only reflects signed contracts, which may contain clauses allowing customers to exit the contract after a certain period or withdraw the contract if specific obligations are not met.

Microsoft is increasing data center capacity to meet demand

According to reports, Microsoft is the exclusive cloud service provider for OpenAI, but is currently facing capacity constraints on its cloud service platform, so Microsoft is increasing data center capacity to meet demand.

Evercore ISI analyst Kirk Materne stated:

“Once capacity comes online, Azure's growth should look better.”

Last week, OpenAI, along with SoftBank Group and Oracle, established a joint venture to build more data centers in Texas to train and run its AI models. Microsoft CEO Satya Nadella stated in an analyst conference call:

“We are still very pleased with our partnership with OpenAI, as you can see, they have made a large-scale commitment to using Azure, and what we see in the order volume is just the first batch of results.”

However, it is important to note that Microsoft has agreed to relinquish its status as the exclusive cloud service provider for OpenAI, and SoftBank Group is negotiating to invest $15 billion to $25 billion in OpenAI, which, if realized, could make SoftBank the largest investor in OpenAI, surpassing Microsoft