Microsoft Says OpenAI Is 45% of the Azure Cloud Computing Backlog

Microsoft is dealing with capability constraints, and OpenAI is driving a big portion of the backlog in its cloud computing enterprise.

The corporate mentioned its backlog in business bookings, a metric known as remaining efficiency obligations, ballooned 110% 12 months over 12 months to $625 billion when it reported earnings for the second quarter on Wednesday.

OpenAI accounts for roughly 45% of these commitments, Microsoft revealed. The corporate didn’t say how a lot OpenAI contributed through the earlier quarter.

Some Wall Avenue analysts on the decision expressed considerations about Microsoft’s dependency on OpenAI.

CEO Satya Nadella mentioned buying extra Azure shoppers is essential to the tech big, however it might probably’t come on the expense of neglecting its different companies.

“If you concentrate on it, buying an Azure buyer is tremendous essential to us, however so is buying an M365 or a GitHub or a Dragon Copilot, that are all, by the way in which, incremental companies and TAMs for us,” Nadella mentioned throughout Microsoft’s second-quarter earnings name. “And so we do not need to maximize only one enterprise of ours.”

Shares of Microsoft fell greater than 6% in after-market buying and selling on Wednesday, even because the tech big posted an general earnings beat.

Morgan Stanley’s Keith Weiss mentioned through the name that some on Wall Avenue could also be spooked by slower progress in general Azure income and the rise in capex spending. Microsoft’s capital expenditures rose 66% 12 months over 12 months to $37.5 billion within the second quarter, one other report for the corporate and testomony to the sheer sum of money tech corporations are spending amid the AI race.

CFO Amy Hood mentioned that Microsoft has to have a look at many alternative areas when it allocates the GPUs and CPUs that come on-line on account of its capex spending, together with investing within the progress of first-party apps like Microsoft Copilot, devoting GPUs to analysis and growth, and the expertise they’ve acquired.

“You find yourself with the rest going in the direction of serving the Azure capability that continues to develop by way of demand,” she mentioned.

Microsoft just isn’t alone in dealing with capability points.

Executives at OpenAI, which has pledged to spend $250 billion on Azure companies, have repeatedly mentioned the startup is held again by a scarcity of compute, forcing robust trade-offs between product and analysis.

Wednesday’s earnings mark the primary quarter since OpenAI accomplished its restructuring, which included a brand new settlement with Microsoft, the startup’s largest investor. Microsoft owns 27% of the general public profit company.

“It is an incredible partnership,” Hood mentioned of Microsoft’s relationship with OpenAI. It is allowed us to stay a frontrunner by way of what we’re constructing and being on the chopping fringe of app innovation.”