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Will Microsoft’s Demand Over Supply AI Crisis Result in an Exodus to Competitors?

Any provider who suffers from demand greatly outstripping their supply will usually end up losing a wave of even the most dedicated customers. It happens with any industry, and it usually sees a boost for other companies offering similar services at competitive rates.

We Want More!

When Microsoft posted its quarterly earnings, CFO Amy Hood commented that customers wanted more cloud computing for their AI in business workloads than the industry giant could realistically supply, with near-term AI demand being higher than their available capacity.

Posting a 17% rise in revenue for the quarter ($61.9bn), Microsoft had 21% of that figure come from its Intelligent Cloud Management, including Azure and other hybrid server products and cloud services. Revenue from Azure and other cloud services grew 31% year-on-year – figures ahead of initial projections, and AI services contributed to that considerable growth.

How much Azure could have linked to the numbers could have been more significant. The shortfall of AI cloud capacity has impacted the quarterly revenue and will follow into the next quarter.

Big Spend

However, the effect on supply has not deterred Microsoft from spending more, with capital expenditures focused on further cloud and AI infrastructure investment. Microsoft is balancing its cloud demand each quarter against its infrastructure investment plans for the next, witnessed in its phased rollout for AI copilots across its offerings.

Many features have been developed for Windows and Office without having deployed due to the lack of compute. GitHub copilot is still utilising a much smaller model. If Microsoft cannot meet the demand in other domains, it may decide to raise prices until the demand drops. Alternatively, many customers may choose an alternative provider or go with different products.

In this instance, it looks unlikely that customers will choose to go elsewhere, as AI workloads are often driven by large enterprise data amounts from applications running on the same cloud. Migration processes are a huge cost, and a very complex path, which will discourage most existing enterprise customers from switching purely over a short-term capacity issue.

Comfort in Brand

Even though Microsoft has been affected on the revenue front due to capacity constraints, there is little concern that new customers will choose an alternative over the leading

provider. It is worthwhile noting that Google and Amazon Web Services are suffering similar issues with capacity alongside Microsoft. The difference is that Microsoft is actively taking steps to build out its AI stack ahead of its rivals.

Google and AWS are still behind in serving models with GPT-4 Turbo capabilities, whereas Microsoft is no longer losing money on API calls and is operating with a healthy margin, pushing it ahead of its rivals.

Attend a Global AI Event

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