MW Here's why Microsoft is beating Amazon and Google in the cloud

By Britney Nguyen

AI gets a lot of attention, but analysts say Microsoft Azure is disproportionately benefitting from migrations in its traditional cloud business

Microsoft Corp. surprised Wall Street with strong earnings last week, reflecting growth in its Azure cloud-computing division. Notably, the company did better than cloud rivals Amazon Web Services and Google Cloud.

That outperformance has been somewhat of a mystery on Wall Street. But analysts at UBS think they've cracked the case - at least partly.

Microsoft $(MSFT)$ said its Azure growth stemmed from cloud migration by large enterprises, as it's "the cloud of choice for customers' mission-critical VMware, SAP and Oracle workloads." That reasoning is "at least consistent with our prior checks," UBS analysts said in a note on Sunday. "[I]n our view, Azure is indeed a disproportionate beneficiary of large SAP SE, Oracle Corp., VMware and other workloads" - a likely reason why it's outperforming Amazon.com Inc.'s $(AMZN)$ AWS and Alphabet Inc.'s $(GOOG)$ $(GOOGL)$ Google Cloud, according to the analysts.

While the artificial-intelligence segment of Azure is a growing part of its overall revenue, "non-AI Azure growth stabilized due to acceleration in cloud migrations," Bernstein analyst Mark Moerdler said in a note last week. Microsoft set Azure guidance ahead of expectations.

The UBS analysts, meanwhile, said they've noticed "three big migration trends" for more than a year, including a forced move for SAP (SAP) customers after the company ended support for its enterprise resource-planning systems. Oracle $(ORCL)$, meanwhile, started running its databases on other clouds, which also led "large enterprises to begin shifting their Oracle database estates to Azure/AWS." And Broadcom $(AVGO)$ raising prices for VMware led to enterprises "lifting-and-shifting VMware-based workloads to the cloud," the analysts wrote.

These could be the "three big things that are happening in the cloud all in parallel" that Microsoft Chief Executive Satya Nadella referred to in the company's third-quarter earnings call, UBS said.

Meanwhile, "a large portion of [SAP and Oracle] enterprise customers noted plans to migrate these critical legacy workloads to Azure, with fewer planning to move these workloads to AWS or Google Cloud," the analysts said, adding that "Microsoft has been early and aggressive to court SAP and Oracle to host these workloads and to establish favorable pricing terms to customers to do so."

It also helps that enterprise customers making the move "are in 'traditional' and often regulated industries" that overlap with Microsoft's existing customers, giving a "disproportionate lift" to its cloud service versus competitors, UBS said.

At the same time, the analysts noted the move to Azure is happening "smack in the middle of one of the more uncertain macro periods in memory."

In the March quarter, UBS noted a growing, yet small, group of enterprises delaying "big cloud migrations in uncertain times like this, as part of a macro-induced push to flex-down on cloud infra costs" - seemingly the right call for AWS and Google Cloud, but not for Azure, the analysts said. The surprising cloud migration could be because plans to cut back are only in the minority, or are slated for the second half of the year, they said.

The analysts included other explanations for the pickup in cloud migration, including how it could be due to "an 'in-house' server product to Azure shift," or that enterprises, and even OpenAI, which are using Azure for AI "are increasingly using core Azure services."

-Britney Nguyen

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May 05, 2025 15:44 ET (19:44 GMT)

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