When 1% Market Share Shifts Represent $5b of Market Cap
Tomasz TunguzVenture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. When 1% Market Share Shifts Represent $5b of Market Cap
If it wasn’t clear before, AI is the single biggest revenue driver in cloud. Microsoft’s Azure is winning share directly from Amazon. In Feburary, Microsoft grew 2% & Amazon lost 2%. Google is also taking share - 1% in the last year. A one percentage point share shift represents about $750 million of spend or about $5b in market cap.
Much of the AI spend is at the enterprise, where a 50% reduction in customer support cost or a 75% increase in engineering capacity filters billions to the bottom line.
Copilot growth implies about a $500 million ARR product growing 35% QoQ - tripling annually.
The rest of Azure is still growing in a nice clip of 24% annually. But AI added 7 percentage points or $4b to the revenue, a 31% growth rate for a $4b business means adding $1.2b of revenue in a year.
Combined with the Copilot business, Microsoft has roughly $4.5b-5b AI product suite. This trajectory shows no signs of slowing down. The company is investing $50b of capex this year into additional capacity because AI demand exceeds supply.
Even more impressive, if illusive to measure, is the cross-selling ability of AI across Microsoft customers. The net dollar retention figures must be world class because Microsoft is largely selling to existing customers. NDRs of 300-400% are not unlikely. Vector databases :
The Fabric data platform :
AI in other applications:
There’s mention of more within the transcript, but I think the point comes across. Within the Google transcripts, One of the more interesting data points is that generated search actually increases search volumes :
Also, the company’s reach across consumers is staggering :
AI is accelerating growth in a $75b market, 20 year old market. If these growth rates aren’t a sign of anything to come, the amount of market cap creation in front of us will a garguantuan figure. |
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