Azure broke the hundred-billion mark. The cloud war has shifted into high gear
$MSFT reported quarterly results yesterday that beat estimates across all key metrics. Revenue of 90 billion dollars, adjusted earnings per share of 4.74 dollars, Azure growth of 43 percent. The market reacted positively and the stock rallied after the release. But the most interesting part of the report isn't the number itself. It's the context in which it arrived.
Tonight, Amazon $AMZN reports. Google $GOOG Cloud reported results less than two weeks ago. For the first time in history, we have a complete picture of all three major cloud players within a single ten-day window.
Three players, three different speeds
Yesterday, Microsoft announced that Azure surpassed 100 billion dollars in annual revenue for the first time ever. That's a milestone few companies in the world achieve. Microsoft's entire cloud business, Azure together with Microsoft 365 and Dynamics, earned 59.3 billion dollars in the quarter, up 27 percent year over year. Microsoft 365 Copilot has over 30 million paying users, meaning AI is finally translating into real revenue for companies, not just into conference presentations.
Cloud market share by company according to Synergy Research data
But Azure is still not the leader. According to the latest data from Synergy Research, Amazon controls roughly three out of every ten dollars spent globally on cloud infrastructure. Microsoft is second with about a quarter of the market, Google Cloud third with just over a tenth. So Amazon still leads in absolute numbers.
Yet the growth rates tell a different story. AWS, in its most recent reported quarter, grew by 28 percent, its fastest pace in fifteen quarters, but still slower than Azure. Meanwhile, Google Cloud two weeks ago posted revenue of 24.8 billion dollars and growth of 63 percent, by far the quickest among the three. Google is the smallest of the trio, but it's growing like a company trying to make up for lost time—and so far, it's succeeding.
So we have a leader that's decelerating relative to the smaller players, a number two that just shattered the symbolic hundred-billion barrier, and a number three that's growing fastest of all, albeit from the smallest base. This is the definition of an open market. Just two years ago, AWS was talked about as an unassailable leader. Today, that's no longer so clear.
Tonight, the final piece of the puzzle arrives—Amazon will report its own second-quarter numbers, and the market will be watching mainly to see whether AWS can accelerate, or whether its lead continues to erode.
Capital expenditures – the number that matters more than revenue
Capital expenditures, or capex for short, are simply the money a company spends on building data centers and buying servers and graphics cards. It's not an expense that immediately hits the income statement, but rather an investment in future revenue (or at least it should be :D).
Microsoft plans capital expenditures of around 175 billion dollars for the next fiscal year. Just the first quarter of the new fiscal year is expected to see spending over 50 billion. That's an enormous number even for a company that earns tens of billions of dollars in net profit every quarter. Amazon has roughly 200 billion dollars in capex planned for this year. Google raised its estimate to 195 to 205 billion, which the market punished after the last report with a six percent drop in the stock, even though revenue and profit themselves beat expectations.
That's an important signal. Investors are no longer applauding every Azure or Google Cloud growth figure—they're starting to ask whether that massive investment will actually pay off, and how soon. So far, margins at both Microsoft and Google are growing, which is a good sign. But if any of these companies starts spending faster than its AI-driven revenue grows, it will be the first sign that we're replaying the late-nineties scenario.
Why I watch capex more than headline numbers
I understand the excitement about Azure breaking the hundred-billion mark. It's a genuinely strong number and shows that demand for cloud and AI infrastructure is real, not just a media bubble. But for these results, I look mainly at one thing—whether operating margins are keeping pace with how fast companies are spending on new data centers.
At Microsoft, margins are holding up, and even growing slightly. That's exactly what I want to see. It means the money invested in Azure and AI is genuinely turning into profit, not just into capacity nobody uses. That's why I'm cautiously optimistic about Microsoft—the numbers support the thesis that AI capex is paying off, but I keep watching every next quarter to see if that pattern breaks.
What makes me uneasy is the pace at which total capital expenditures across the sector are growing. The combined planned investments of Microsoft, Amazon, and Google for the next year approach half a trillion dollars. That's a sum that already far exceeds any historical parallel in the tech sector. If AI demand slows even slightly, we'll see margin pressure across the entire sector, and very quickly.