Digging into Microsoft’s cloud backlog

Microsoft’s Azure cloud computing unit is seeing huge demand. In yesterday’s second-quarter earnings call, Microsoft CFO Amy Hood said the company’s commercial bookings increased 230% thanks to large commitments from OpenAI and Anthropic and healthy demand for its Azure cloud computing platform.

Hood said that the company’s “remaining performance obligations” (RPO) ballooned to a staggering $625 billion, up 110% from the same period last year. How long will it take for Microsoft to fulfill these booked services? Hood said the weighted average duration was “approximately two and a half years,” but a quarter of that will be recognized in revenue in the next 12 months.

Shares of Microsoft tanked today, down over 11%, despite the strong beat on revenue and earnings. The drop puts the stock on track to have its worst single-day drop since March of 2020.

Investors may be concerned that while huge, that extra demand was coming only from OpenAI, an issue that Oracle recently experienced.

But Hood said the non-OpenAI RPO still grew 28% year on year, which reflects “ongoing broad customer demand across the portfolio.”