- Microsoft is betting on making its own AI chips for long-term growth, new internal documents show.
- The documents were released Monday by the FTC, as it sues to block Microsoft’s $70 billion Activision Blizzard deal.
- Cloud market leader AWS is lagging behind Microsoft in AI efforts.
Microsoft is betting on developing its own silicon chips to drive long-term growth for its cloud business, newly-released internal strategy documents confirm.
The tech giant is working on making its own “first-class silicon chip to underpin our cloud and AI efforts,” according to an internal presentation for the company’s board of directors in 2022 that was briefly published online this week as part of the Federal Trade Commission lawsuit against Microsoft in an attempt to block its $70 billion deal to acquire Activision Blizzard. Microsoft considers chip-development one of its “needle-moving priorities,” an initiative expected to generate $10 billion of new revenue by 2030.
The company has been secretly developing an artificial intelligence chip, code-named Athena, since as early as 2019, The Information first reported in April. It hopes the chip will outperform the ones it buys from vendors to save money on its high-cost AI efforts. Companies like Amazon, Apple, and Google are already developing chips in-house.
Chip development is part of Microsoft’s plan to add $10 billion in revenue to its data and AI businesses over the next three years, for a total of $26 billion, and more broadly, contribute to the company’s goal to reach $500 billion in total revenue by 2030. Microsoft’s revenue for 2022 was $198.3 billion, up from $161.1 billion the year prior.
According to the board presentation, Microsoft controlled 16% of the global cloud server market as of June 2022, while Amazon Web Services held 38% and Google Cloud Platforms just 8%.
“We’re currently a strong number two player in the public cloud space,” Microsoft chairman and CEO Satya Nadella wrote in a memo included with the presentation. “Our priority is to maintain growth above the market rate to extend our lead over GCP and close the gap with AWS.”
Microsoft’s Azure cloud has long trailed behind AWS as the second-largest provider in the cloud computing market. But after years as the dominant cloud player, AWS’ growth is waning. It reported its slowest growth rate to date for the first quarter of 2023, an 11% increase, down from 40% for the first quarter in 2022. Meanwhile, revenue for Microsoft’s Azure and other cloud services increased by 27% for the third quarter of fiscal 2023.
AWS has lagged behind Microsoft and Google as the major cloud providers ramp up their AI efforts, and Microsoft could end up catching up to AWS by carrying more AI workloads in the cloud. Since 2019, Microsoft has invested billions of dollars into OpenAI, the maker of ChatGPT. On its third-quarter earnings call in April, Microsoft told investors that AI revenue added one percentage point to Azure’s growth rate.
Wall Street was less impressed by the AI efforts AWS touted on its earnings call a few days later.
“Management’s commentary around AI on the earnings call didn’t inspire a lot of confidence like some of AWS’ competitors,” Bernstein analysts later wrote in a note to investors.
Since then, AWS has announced the launch of its $100 million Generative AI Innovation Center, meant to help customers build and deploy generative AI offerings.
Do you work at Microsoft or AWS and have insight or information to share? Contact Ellen Thomas on Signal at 646-847-9416 or [email protected] using a nonwork device.
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