Microsoft surges as AWS flatlines

Welcome to Runtime! Today: Blockbuster earnings growth from Microsoft Azure overshadows a lukewarm quarter from AWS, Figma reignites the IPO market (maybe), and the latest enterprise moves.

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Good thing everybody's back in the office

Just when it seemed like Google Cloud was the big winner of second-quarter enterprise tech spending, Microsoft outdid its Bay Area competitor this week by reporting enormous growth in its cloud business Wednesday thanks in part to demand for AI. But the company that has controlled the enterprise tech market for the last decade is not seeing the same boost.

AWS recorded $30.9 billion in revenue during the quarter, which was in line with analyst expectations for growth of 17.5% but flat compared to the last quarter and down compared to the same period last year. Microsoft, on the other hand, smashed analyst expectations for its Azure business with 39% growth, one quarter after reporting 33% growth.

• AWS has long suffered when it comes to comparing growth rates among the Big Three because of its market-leading position, but the trends are getting hard to ignore.
• Amazon CEO Andy Jassy was peppered with questions about AWS's growth rates during a conference call following the release of the results, and he reiterated how much larger AWS's business is compared to Microsoft and Google.
• "These are all really just moments in time. What really matters is what customers' experiences are in operating on these platforms," he said, arguing that AWS has an advantage over its rivals when it comes to durability and security.
• And he also suggested that there is more demand for AWS's services than it has the capacity to fulfill, but that is true for all the hyperscalers as Nvidia's chips remain a hot commodity and data centers get harder to build.

Microsoft's overall revenue was up 18% to $76.4 billion, and revenue from the Microsoft Cloud (which includes the commercial side of Microsoft 365, Azure, and Dynamics 365) was up 27%. The company no longer breaks out how much of Azure's growth was attributable to AI — which is weird — but CEO Satya Nadella pointed to AI as just one factor driving Azure's surprising upside during the quarter.

• Microsoft is seeing an acceleration in cloud migrations, Nadella said, citing VMware customers looking for an exit from the Broadcom regime as one source of growth.
• Customers running traditional cloud applications are also seeing increased demand for their apps, which of course funnels back to Microsoft as those customers look for additional computing resources.
• "Some of those customers were not on Azure previously, but now they’re increasingly there because they have come for AI, perhaps, but they now stay for more than AI," Nadella said on a conference call with analysts, according to a transcript.
• And the generative AI applications that customers are building on Azure are becoming more sophisticated, he said, which also drives demand for compute and other services: "We’re building pretty sophisticated applications at a very, very fast clip, based on, I think, the degree of maturity that’s emerging."

The platform shift promised by the Big Three appears to be under way after a couple of years where it was difficult to see exactly how generative AI was being adopted across enterprise tech. Cloud growth rates have slowed across the board over the last several years given the enormous size of the industry these days, but with the exception of AWS, they are now re-accelerating, and it's not because businesses feel great about the economy.

• Microsoft CFO Amy Hood said the company has $368 billion in business under contract for the next several years, which is up 37% from the same period last year, and 35% of that number will be recognized as revenue over the next 12 months.
• AWS reported contractual obligations of $195 billion, which isn't exactly an apples-to-apples comparison because Microsoft includes commitments for its productivity software suite in that number, but it is still growing more slowly than Microsoft's backlog.
• And as the call wound down with more questions about AWS growth, Jassy was left reiterating the mantra that former AWS CEO Adam Selipsky tried real hard to sell: "It's still early days."

Playing the Field

Nearly two years after Adobe tried and failed to buy design darling Figma for $20 billion, investors poured money into Figma's initial public offering Thursday. At the close of trading, the company was worth $68 billion, nearly half what Adobe was worth at the end of the same day.

Newly minted billionaire Dylan Field, co-founder and CEO of Figma, told CNBC that "the most important thing to remind myself of, the team of, is share price is a moment in time." While he's right — in that the herd mentality on Wall Street is topped perhaps only by the herd mentality on Sand Hill Road — there's no question that Figma's collaborative tools have changed the way that many companies design and develop their products and services.

Figma's success prompts two questions; the first is whether or not enterprise tech companies that have been dancing around going public for years (looking at you, Databricks) now feel that the time is right to take the plunge. The second, more difficult question, is what Adobe can do to regain momentum in business design software now that the torch seems to have been passed to a new generation of builders.

Enterprise moves

John “JG” Chirapurath is the new president of DataPelago, joining the data analysis company after serving as executive vice president of SAP.

Heather Planishek is the new chief operating and financial officer at Tines, joining the workflow automation company after serving as chief accounting officer for Palantir.

Nate Yohannes is the new president of Zeta Data & AI Lab as well as global head of research and development at Zeta Global, joining the martech company following tech leadership roles at Meta and Microsoft.

Quincy Castro and Eyal Bar are the new chief information security officer and chief financial officer, respectively, at Chainguard.

Julian Skeels is the new chief digital officer at Expereo, joining the networking management company following product leadership roles at Keystone Education Group and DAZN Group.

The Runtime roundup

The U.K.'s Competition and Markets Authority declared that AWS and Microsoft have too much power over enterprise customers across the pond, setting the stage for regulatory intervention.

Cloudflare beat Wall Street's expectations for revenue and earnings and raised its revenue guidance for the current quarter and the full year.

Anthropic's large-language models are favored by most enterprises, according to TechCrunch, with 32% of the market compared to OpenAI's 25%.

Thanks for reading — see you Tuesday!