Microsoft stands near forefront of intelligent cloud battleground: MS

Microsoft (NASDAQ:MSFT) stands as one of the few tech titans in the battle for supremacy among intelligent cloud platforms.

The intelligent cloud refers to cloud applications built with artificial intelligence or enhanced functionality. Companies such as Microsoft, Snowflake (NYSE:SNOW), Amazon Web Services (NASDAQ:AMZN) and Google Cloud (NASDAQ:GOOG)(NASDAQ:GOOGL), to name a few, have moved beyond the first-generation cloud technologies of the past decade.

“The move towards interoperability carries both opportunities and risks for cloud data warehouse vendors, including Snowflake and Microsoft,” said Morgan Stanley analysts, led by Sanjit Singh, in an extensive report. “While investors have focused on the storage layer, we see implications for the data transformation and query layer a well, which make up the majority of spend.”

Morgan Stanley estimates the intelligence cloud creates a $133B opportunity, but the path and pace of the adoption rate is uncertain.

“While the commitment of these customers to build a more interoperable data stack is firm, the range of possible outcomes remains broad with all of these customers still in the early innings of evaluating the next steps,” Singh said.

“What appears clear to us is that despite the uncertain outcome, more attention must be paid to not just the storage layer (~10% of existing cloud data warehouse spend), which remains a focus for investors given Snowflake’s Iceberg tables availability, but also the ETL/ELT layer (~25% of existing cloud data warehouse spend) and ultimately the query engine layer (~65% of existing cloud data warehouse spend), which make up the compute revenue and could be affected as well in this transition,” he added.

Microsoft’s Intelligent Cloud is one of the fastest growing segments of the company. Intelligent Cloud accounted for $87.9B during fiscal year 2023, which represented a year-over-year increase of 17%.

During the fourth quarter of fiscal 2024, Intelligent Cloud accounted for $28.5B, which was nearly a 20% increase from the same quarter one year prior. Intelligent Cloud for the entire fiscal 2024 totaled $105.3B, which was a year-over-year increase of 19%.

However, for the first quarter of fiscal 2025, Microsoft expects a decline in the Intelligent Cloud segment, with it ranging from $23.8B to $24.1B. The company expects this segment to climb again during the second half of fiscal 2025.