A $3 trillion dollar black box
A clarion call for better transparency
Let me start by saying that Satya Nadella is a rock star and next level genius in his tenure at Microsoft. Amy Hood is a consummate pro working her way up from Investor Relations to being the CFO of the $3 trillion tech behemoth. All that said, Microsoft intentionally is misleading, misinforming and painting a growth picture that is impossible to analyze. Is it because they do not want competitors to be able to analyze their business? Nah. Amazon lays out the exact revenue and operating profit of their AWS division every quarter. You can see how much net new dollars they added sequentially and do your own math on the business, acceleration or deceleration. Microsoft, not so much.
First, Microsoft gives on every conference call their growth in Intelligent Cloud which encompasses Azure but has other “stuff” in it. In order to make it “more” transparent, Microsoft did a recasting of their business segments in August of 2024 to remove slower growing non Azure businesses from Intelligent Cloud. They went to lengths to recast the Azure growth rates higher from a smaller base. The following is the ISI analyst Kirk Materne’s latest report with his Azure re-casting. Again, Kirk is a terrific analysts, been doing this forever, but even should wonder at all of the moving parts I am about to discuss.
Let’s start with the re-casting. So Azure isn’t $21 billion per quarter anymore adding net new business in the $1-1.5b per quarter. It is a $16.6 billion business adding those amounts. That seems odd but no one blinked at the $20 billion re-classification. In fact, the numbers being smaller make the growth rate higher! Prima facie, do you believe Azure is a smaller now $16 billion business that is adding $1.2b net new business a quarter? Amazon at $27 billion per quarter adding that amount makes more logical sense. Naysayer: Well Microsoft is growing faster and gaining share? Come on, just be intellectually honest it doesn’t look accurate for a business that is “the Microsoft story” to suddenly be that small and adding that much net new business. We can agree to disagree, but it gets even more confusing.
Amy Hood also has been giving the AI contribution to Azure each quarter which the analysts are trying to use as a barometer for core Azure growth vs AI growth (workloads). For Kirk’s math his report said:
