Standing at the forefront of the intelligent cloud battlefield, Microsoft Corporation (MSFT.US) faces risks and opportunities.

In the battle for dominance in the smart cloud platform, Microsoft Corporation (MSFT.US) is one of the few tech giants. Analysts at Morgan Stanley, led by Sanjit Singh, mentioned in a report: "For cloud data warehouse providers including Snowflake and Microsoft Corporation, moving towards interoperability presents both opportunities and risks." "While investors focus on the storage layer, we see the impact of the data transformation and query layer, which constitute the majority of expenses." Smart cloud refers to cloud applications built using artificial intelligence or enhanced features. Companies such as Microsoft Corporation, Snowflake (SNOW.US), AWS (AMZN.US), and Alphabet Inc. Class C Cloud (GOOGL.US) have surpassed the first-generation cloud technologies of the past decade. Morgan Stanley estimates that smart cloud will create a $133 billion opportunity, but the path and pace of adoption are still uncertain. Singh said: "While these customers are committed to building a more interoperable data stack, the range of possible outcomes remains wide as all these customers are still in the early stages of evaluating the next steps." He added, "What is clear to us is that, although the outcome is uncertain, more attention must be paid to not only the storage layer (which accounts for 10% of existing cloud data warehouse spending, considering Snowflake's iceberg table availability, this is still the focus of investors), but also to the ETL/ELT layer (which accounts for 25% of existing cloud data warehouse spending), and ultimately the query engine layer (which accounts for 65% of existing cloud data warehouse spending), which constitutes compute revenue and may be affected in the transition." Microsoft Corporation's smart cloud is one of the company's fastest-growing divisions. Smart cloud revenue reached $87.9 billion in the 2023 fiscal year, a 17% year-over-year increase. In the fourth quarter of the 2024 fiscal year, smart cloud revenue was $28.5 billion, nearly a 20% increase from the same period the previous year. Total spending for smart cloud in the entire 2024 fiscal year was $105.3 billion, a 19% increase year-over-year. However, looking ahead to the first quarter of the 2025 fiscal year, Microsoft Corporation has lowered its sales forecast for the smart cloud division to $23.8 billion to $24.1 billion. The company expects this segment to rise again in the second half of the 2025 fiscal year.