Tomasz Tunguz - AI Reaccelerating Cloud Growth
Tomasz TunguzVenture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. AI Reaccelerating Cloud Growth
Yesterday, both Google and Microsoft announced their earnings for their cloud businesses. I’ve been tracking the growth rates of these companies and product lines for the last 18 months to develop a broad gauge of enterprise buying patterns after the downturn. In the chart, it’s immediately evident that Mongo has seen dramatic increase in growth rate last quarter. We await the earnings from everyone aside from Google and Microsoft in the next few weeks. Notably, Microsoft has also re-accelerated - like Mongo, although to a lesser extent. This growth is fueled by AI workloads. Google, on the other hand, declined after having plateaued last quarter. Listening to the Microsoft earnings call, There are some interesting insights to be gleaned. First, Microsoft is diversifying its algorithms portfolio from primarily OpenAI to open source models.
Second, the adoption of Azure OpenAI has grown from 11,000 last quarter to 18,000, a 67% growth, demonstrating the broad wave of adoption that has & likely will continue to Azure revenue growth.
Also, the growth rate should sustain next quarter, indicating some durability in the growth rate.
Third, the paid Copilot business - the assistant across Microsoft products is now roughly a $360m ARR business, assuming every customer pays list price. The average customer purchases 38 seats of Copilot (though this is very likely skewed by larger customers).
Microsoft’s presence in the developer ecosystem continues to astound. At the time of acquisition, Github had about 25m users & projected to reach 100m in 2025. They’ve crossed the mark 2 years early.
Both Google & Microsoft have announced Copilot for security products, features that other security vendors including Cisco are developing, uggesting this may be the next vertical to grow from AI after content generation & legal software.
Google has benefitted from some significant interest in Duet, their Copilot product which has driven customer expansion.
At hyperscale, the companies with the deepest AI exposure are enjoying faster growth rates as enterprise demand for these products accelerates.ss |
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