AWS, Microsoft rake in the AI treats

Welcome to Runtime! Today: Why Microsoft and AWS are giving thanks for the generative AI boom, why Supermicro is in big trouble, and the latest enterprise moves.

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Sugar high

At several points during 2023 it seemed like the decade-long boom in spending on cloud infrastructure services had finally come back down to earth, as enterprises and startups around the world started to think more critically about their cloud computing investments for perhaps the first time. Now that we've seen three quarters of data on cloud spending in 2024, it's clear that investment in AI infrastructure services is reversing that trend.

Both AWS and Microsoft reported strong cloud results this week that makes the doom-and-gloom of 2023 seem like ancient history. As you might expect, both companies attributed their growth to customer investments in AI services, and coming off of Google Cloud's even-stronger revenue growth suggests that the future of AI will run in Big Cloud.

AWS reported revenue of $27.45 billion during the third quarter, which is a 19% increase compared to last year.

That number came in slightly under analyst expectations, according to CNBC, but it was a much better result than the 12% growth AWS recorded in the third quarter of 2023.
On a conference call with financial analysts, Amazon CEO Andy Jassy said AWS's AI business is on a "multibillion-dollar run rate" and is growing faster than AWS itself did upon reaching that pace years ago.
Demand for AWS's AI services is exceeding supply, Jassy said, which is starting to become a widespread problem across cloud infrastructure providers amid the rush to capitalize on demand for AI services.
AWS's operating profit also crossed the $10 billion mark for the first time, suggesting that the margins on those AI services are pretty healthy and that several rounds of layoffs are sinking in.

For its part, Microsoft Azure exceeded expectations with 33% growth during its first fiscal quarter of the year, and company executives assigned 12 percentage points of that growth to its AI business.

"Azure took share this quarter," said CEO Satya Nadella on a conference call following the earnings results, after the company lost a little market share last quarter for the first time in a long time.
However, Azure growth dipped slightly compared to the previous quarter, and Microsoft expects Azure growth to decline slightly during the upcoming quarter, which sent its stock plunging 6% Thursday in what CNBC called its worst day in two years.
Part of the problem is that much like AWS, Microsoft is having trouble bringing new data center capacity online, according to CFO Amy Hood.
Still, Microsoft spent $20 billion on capital expenditures during the last quarter, and Hood expects the company to spend slightly more during the current quarter as Microsoft's AI business reaches the $10 billion annual run rate.

Cloud customers are in a period of wild experimentation right now with generative AI, and there's no guarantee that the investments they're making now will translate into ongoing business. But both Jassy and Nadella seem confident that AI growth will continue to lift cloud spending into 2025.

Both companies have long believed that the AI model training boom will lead to an even greater opportunity for AI inference workloads, which is the computing power that's needed to service user queries to those models.
"If you think about the point we made, that this is going to be the fastest growth to $10 billion of any business in our history, it’s all inference," Nadella said Wednesday.
It's worth noting that neither company is willing to put a specific number on how much of their cloud business can be directly attributed to AI, which suggests that anything even remotely related is getting tossed in that bucket.
The longer-term question is whether the billions invested in AI infrastructure will be worth the return, and it could take years to render judgment on that.

Rotten macro

With the notable exception of Nvidia, perhaps no other company benefited more from the generative AI frenzy than Supermicro, the longtime server vendor. Its stock rose an astonishing 2,000% over the last two years as investors looked to capitalize on demand for AI infrastructure, but it became clear this week that Supermicro is in super trouble.

E&Y announced Wednesday that it would no longer serve as auditor for the company, stating that it was "unwilling to be associated with the financial statements prepared by management" according to Reuters. That's about as devastating a thing you can hear from your accountants, and Supermicro's stock slid 33% on Wednesday and fell another 12% on Thursday.

The Wall Street Journal reported last month that the Department of Justice was looking into allegations by a former Supermicro employee of accounting irregularities, and E&Y's announcement only furthered speculation that criminal charges could be pending. Demand for AI servers will likely continue well into 2025, but Supermicro's competitors might be the beneficiaries.

Enterprise moves

Colby Winegar is the new CEO of Storj, after serving as chief revenue officer for the blockchain cloud storage company for several years.

Jay Parikh is the new … something at Microsoft, joining the company's senior leadership team in an unspecified role after scaling Lacework as CEO and building Facebook's forminable tech infrastructure over nearly a decade.

Matt Wood is the new commercial technology and innovation officer at PwC, following a long career at AWS in several AI leadership roles.

Cooper Werner is the new executive vice president and chief financial officer at F5, after more than 20 years in finance roles at the networking and security company.

Tim McKnight is the new CISO at UnitedHealth, joining the company during a fraught period following this year's security breaches and after five years in a similar role at SAP.

Ajay Awatramani is the new chief product officer at Five9, following several years in product leadership roles at Cornerstone OnDemand, Adobe, and Marketo.

The Runtime roundup

Intel shares soared nearly 10% after the beleaguered chip company provided rosy guidance for the fourth quarter, even though revenue declined 6% in the third quarter.

It doesn't look like OpenAI will be ready to release GPT-5 this year, according to CEO Sam Altman, who said "all of these models have gotten quite complex and we can’t ship as many things in parallel as we’d like to" in a Reddit AMA.

Dropbox will lay off 20% of its staff, or 528 people, citing the need to reinvest in AI as its growth flatlines.

The Biden administration is getting closer to releasing a new executive order on cybersecurity, according to CyberScoop, although that order could be moot the minute it is released depending on what happens next Tuesday.

Thanks for reading — see you Saturday!