Microsoft (MSFT) Azure Selected by Meta to Boost AI Innovation

Microsoft MSFT, over the past few years, has almost doubled down on the cloud computing opportunity. Growing demand for the company’s cloud solutions is expected to strengthen its competitive position in the cloud computing market. In the last reported quarter, Microsoft Cloud revenues were up 32% year-over-year, at $23 billion. However, the company has lost 20.9% in the year-to-date period compared with the Zacks Computer - Softwareindustry's decline of 24.7%. Meanwhile, the Computer and Technologysector has tumbled 28.4% year to date.

The company has been consistently focusing on upgrading and expanding its cloud offerings to expand its customer base.

Recently, Microsoft announced that it had expanded its ongoing collaboration withMeta Platforms FB.

As part of the extended partnership, Meta selected Azure as a strategic cloud provider to help accelerate artificial intelligence (AI) research and development (R&D).

Meta will be using a dedicated Azure cluster of 5400 GPUs, using the latest virtual machine (VM) series in Azure for some of their large-scale AI research workloads.

The Azure platform has four times the GPU-to-GPU bandwidth between virtual machines compared to other public cloud offerings. Thus, using Azure will enable Meta with faster distributed AI training.

The Meta- Microsoft collaboration will also help in scaling PyTorch adoption on Azure, thus accelerating a developer’s journey from experimentation to production.

In the near term, Microsoft has plans to build new PyTorch-based solutions for Azure. Moreover, the company will continue to provide enterprise-grade support for PyTorch, enabling customers and partners to deploy PyTorch models in production on both cloud and edge.

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Accelerated Adoption of Microsoft Cloud Boosts Prospects

The coronavirus-led pandemic has led to an accelerated digital transformation and cloud migration across organizations. Per a Market And Markets report, the global cloud computing market was valued at $445.3 billion in 2021 and is expected to reach $947.3 million by 2026, growing a witness a CAGR of 16.3%. The trend bodes well with tech companies such as Microsoft.

In spite of Amazon AMZN ruling the addressable market with Amazon Web Services and Alphabet GOOGL threatening to become a significant competitor with Google Cloud, Microsoft’s cloud computing division is responsible for a significant portion of the company’s recent growth.

According to the latest Canalys report, AWS accounted for 33% of the global cloud spending in first-quarter 2022, sustaining its leading position in the booming cloud market. Microsoft’s Azure, the second-largest cloud-service provider, accounted for 21% of the worldwide cloud spending. Alphabet’s Google Cloud represented 8% of the cloud spending, marking itself the third-largest cloud provider.

Recently, Amazon Web Services announced the availability of its Graviton3 processor-backed Amazon Elastic Compute Cloud (Amazon EC2) C7g instances. Arm-based AWS Graviton3 processors deliver up to three times better performance for machine learning workloads compared with the company’s last-generation chips — AWS Graviton2 processors. While C7g instances offer enhanced performance to customers for their compute-intensive workload. This latest development will likely boost Amazon Web Services’ position in the addressable market.

Further, Google Cloud entered into a technology partnership with AMD. Per the terms of the partnership, AMD will run electronic design automation (EDA) for its chip-design workloads on Google Cloud, further extending the on-premises capabilities of AMD data centers.

Microsoft’s Azure continues to draw in customers. Per management, the number of $100 million-plus Azure deals more than doubled year-over-year in the third quarter.

Earlier this year, leaders such across different industries such as Lufthansa Technik, BlackRock and Bridgestone have moved their SaaS platform to Microsoft Azure.

Additionally, Atos, Chevron, Fujitsu, and Woolworths migrated their SAP applications to Azure in recent months. In the last reported quarter, Azure and other cloud services grew 46% and 49%, in constant currency, driven by continued strength in the company’s consumption-based services.

As economies reopen and businesses shift to a hybrid model, Microsoft is expected to keep up its pandemic-induced sales of cloud solutions.  Notably, Microsoft expects Intelligent Cloud revenues of $21.4 billion for its fiscal fourth quarter, driven by strong growth in its Azure platform.

Driven by these trends, Microsoft has also been witnessing a demand for its Windows products. The company has witnessed strength in its commercial PC market, which is expected to drive the Windows original equipment manufacturers (OEM) revenue in the near-term. To cater to the changing consumer preferences, Microsoft has introduced new and improved Surface devices that could encourage enterprises to stick with Windows as they move toward bring-your-own-device (BYOD) and cloud computing. This move is likely to help the company retain its enterprise customers. In the last reported quarter, revenues from the sale of Surface devices increased 8%.

The adoption of the cloud and the ongoing demand for gaming consoles and work-from-home productivity tools and software are expected to continue to boost prospects for Microsoft, which currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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