On the surface, this suggestion makes a lot of sense given all the talk about artificial intelligence (AI) stocks being in a bubble. That means most of the investment in the AI industry’s own growth is in the rearview mirror.
Probably so.
But if so, someone might want to let the software giants know. microsoft (MSFT +0.07%). As of the fiscal second quarter ending in December, the company’s cloud division’s remaining performance obligations totaled $625 billion, more than doubling in size from the same period last year.
To put that number in perspective, Microsoft is expected to report total revenue of $328 billion for the fiscal year ending June.
Microsoft isn’t the only company reporting a large and growing AI backlog. Here’s what you want to know.
Image source: Getty Images.
Many AI businesses are waiting for reservations.
What is a “remaining performance obligation”? This is just a technical description of future business that is already planned but not yet used by paying customers and therefore not yet recorded as revenue.
It is not yet known exactly when these obligations will be translated into reportable revenue from cloud customers receiving contracted services. However, you can get a rough idea of most things.
“We expect to recognize approximately 25% of both our remaining performance obligation revenue and commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter,” Microsoft explained in its quarterly filing with the Securities and Exchange Commission (SEC). The remaining weighted average term of these obligations will be 2.5 years.
Today’s changes
(0.07%) $0.26
current price
$371.30
Key data points
Market capitalization
$2.8 trillion
daily range
$369.30 -$371.96
52 week range
$344.79 – $555.45
volume
159K
average volume
35M
gross profit
68.59%
dividend yield
0.94%
rival oracle (ORCL 0.73%) is doing pretty well on this front as well, and certainly paints a clearer and more bullish picture of the growth that awaits the cloud access computing side of the AI business. Remaining performance obligations amounted to $553 billion in the three months to February. Of this, only $18 billion will be recorded in the fiscal year ending in May. This number is projected to increase every year until 2030. The company currently expects to have $144 billion worth of cloud infrastructure business.
Even if growth slows down, it will still be impressive growth.
Take all numbers with at least a little grain of salt. Neither company provided details regarding the possibility for customers to cancel these service contracts. At least some of them are thought to want to terminate their contracts.
Possible, but unlikely.
Even if the surge in demand for AI cools, it will still grow from a situation where demand far exceeds supply. Even if the overall business isn’t as exciting as it was last year, companies that are already using AI platforms or have already reserved future access are unlikely to abandon them right now. In this vein, industry researcher Technavio still believes that the global AI infrastructure market will grow at an average annual rate of nearly 25% until 2030.
The biggest risk here is simply that Oracle, Microsoft, and their peers will spend a lot of money building out the infrastructure they have promised to existing customers for the foreseeable future.
It’s not yet a tragic prospect. This added computing power will somehow be used by someone to at least cover its costs.
