Microsoft’s Cloud Business Is on Fire. Could It Beat Amazon Web Services?

Microsoft’s cloud business is on fire. Contrary to doomsday predictions that Azure would lose footing as COVID-19 subsided, the division has done nothing but gain traction. On Tuesday, Azure alone reported $20.7 billion in revenue, or 36% year over year. On the partner side, too, Azure saw a number of MSPs attain Expert status over the past three months. While the cloud business at Microsoft still trails Amazon Web Services, it’s looking as though it could at least catch up to the public cloud leader.

Futurum Research’s Daniel Newman

“There have been some question marks over the past several quarters as to whether Microsoft could maintain this level of cloud demand as the pandemic continues,” said Daniel Newman, principal analyst at Futurum Research. Now, however, as COVID-19 wanes somewhat, “there continues to be a strong correlation between the economic rebound numbers and investments in cloud technology.”

With that in mind, Newman added, “it’s hard not to be bullish about the Azure offerings.”

“I said last quarter that I wouldn’t be surprised to see this 45%-50% growth for Azure sustain for another three to four quarters based upon current momentum,” Newman said.

Newman isn’t the only one upbeat about Microsoft’s cloud business. In the wake of unexpectedly stellar Azure earnings – alongside the rest of the company’s growth – at least one analyst is predicting Redmond’s stock to surpass $400.

“I think this is just more fuel in the engine to drive this stock higher,” Wedbush analyst Dan Ives told Yahoo Finance Live. “It just shows [Microsoft CEO Satya Nadella] in this cloud arms race is continuing to gain share.”

Wedbush’s Dan Ives

So far this year, Microsoft’s share price has risen 39%, driven largely by Azure. Ives agrees with Newman that a lessening pandemic will not drag down Microsoft’s cloud business.

“Go back the last six months, the haters will say that this is going to be a decelerating cloud, because of a COVID pull-forward; instead, it’s the opposite,” Ives told Yahoo Finance Live.

Azure Pessimism Unwarranted

To be sure, there’s no solid reason to think Azure will flail with COVID-19 fading into the background. The pandemic has changed how people work, for good. These days “hybrid work” is all the rage. And remote and combined at-home and in-office work are not possible without cloud computing. With that comes extreme concerns around security. Azure has proven its security mettle (it holds the highest clearance at the federal level and won the Defense Department’s initial, embattled Joint Enterprise Defense Infrastructure contract largely because of that). Sure, AWS continues to lead the public cloud computing sector, but not everyone necessarily wants to team with the company (and recent revelations of its high-pressure sales tactics may not help its growth aspirations, although Google Cloud and Azure face similar accusations).

In other words, there’s enough cloud computing business to go around and demand shows no signs of slowing. Consider the global cloud revenue increases in just the first half of the year as evidence. They’re up 25%, to $235 billion, according to Synergy Research Group. Microsoft remains a chief player in those gains, said John Dinsdale, a chief analyst at Synergy.

Synergy Research Group’s John Dinsdale

“While a rising tide lifts all boats, the companies doing particularly well are those which don’t have boat anchors of large, legacy non-cloud markets,” Dinsdale said. “Ten years ago companies like Amazon, Salesforce and Google were hardly present in enterprise IT. But now they areclouda major force in the market. Microsoft is also particularly noteworthy. It has had a large enterprise presence for many years but has transformed itself into being the leading cloud player, based on revenues from the whole ecosystem.”