Cloud Wars Live with Bob Evans

In today's Cloud Wars Minute, I break down OpenAI's decision to make GPT-5.6 the preferred model for Microsoft 365 Copilot and why AI efficiency is becoming an increasingly important competitive advantage.

Highlights

00:09 — It's fair to say that OpenAI has had a changeable relationship with Microsoft over the past few years. However, ties between the two companies have always remained strong. To that end, OpenAI has announced that GPT-5.6 has become the preferred model in Microsoft 365 Copilot, which includes Word, Excel, PowerPoint, Copilot Chat, Teams.

00:33 — Now, for context, this is OpenAI's latest flagship model, which the company claims delivers higher quality outputs and stronger performance per dollar spent, and this efficiency is increasingly important as more work shifts to AI models.

00:58 — For Excel, there'll be deeper data analysis and faster insights in PowerPoint. Copilot will be able to create more polished presentations with less manual effort. Meanwhile, Copilot Chat benefits from GPT-5.6's improved reasoning and productivity capabilities for everyday tasks.

01:28 — For me, though, the biggest benefit is this idea of improved efficiency — the notion of getting the most out of every token and gaining more value from the tools you're using. I think this will become a new battleground moving forward, not just for model developers who balance power and budget friendliness, but also for providers of AI tools like Microsoft, who need to show their customers that they're making the best choices in how these products are powered.

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In today's Cloud Wars Minute, I break down the reshuffled hyperscaler rankings and what AWS's comeback means for the AI economy.

Highlights

00:03 — The third hyperscaler reported its numbers late last week. That was Amazon's AWS unit. Fantastic quarter for AWS. Best in four or five years. It had what I called an awesome Q2, and in doing so, we've seen a complete reshuffling of the growth standings among the hyperscalers.

01:18 — Microsoft, for the same period, its fiscal Q4 grew 27% to $59.3 billion, and Google Cloud was up an incredible 82% to almost $25 billion. We see Google Cloud and now AWS on a very nice continuous upswing, while Microsoft has leveled off.

03:05— Inside AWS, the backlog soared, up 154% to almost $500 billion. Andy Jassy said Amazon will spend in 2026 $220 billion on CapEx, almost all of which will go toward building the data centers necessary to fund this expansion in cloud and AI.

04:19 — The smallest backlog number of the four hyperscalers is AWS at $496 billion. Microsoft is around $675 billion, Google Cloud is $514 billion, and Oracle is about $636 billion. Together they represent well over $2 trillion in backlog.

05:12 — I think it's great seeing AWS back in high-growth mode. It makes the competition better, and it certainly is a great thing for customers, who now have choices of fantastic suppliers across the four hyperscalers: AWS, Google Cloud, Microsoft, and Oracle.

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In today's Cloud Wars Minute, I examine why SAP's biggest competitive challenge may soon come from OpenAI and Anthropic rather than traditional enterprise software rivals.

Highlights

00:00 — SAP released its Q2 numbers last week, and a couple of interesting things happened there. First of all, strong Q2 cloud revenue growth, 24%. But even higher than that was its backlog growth, which went up 26%. CEO Christian Klein tied that specifically to the company's transformation, started about two years ago, to shift more and more of the sales effort from the direct channel to the indirect channel.

00:56 — It had resellers whose big concern a number of years ago was, "Well, what margin am I going to get? What discount do I get?" Today, the focus, through the efforts of Chief Partner Officer Karl Fahrbach and Klein, has shifted very, very much toward, "How do we get successful outcomes? How do we ensure these AI deployments happen smoothly, rapidly, and effectively at the customer site?"

01:29 — It's about $7.2 billion. Within that, the Cloud ERP Suite was up 27% to $6.4 billion, and the current cloud backlog, that 26% jump, pushed it to $26.3 billion. It said growth for full-year 2026 will be somewhere between 23% and 25%. I've penciled it in here as 24%, and that will come in right at about $30 billion.

02:28 — Klein said, "The growth for our indirect channel in Q2 again significantly outpaced our direct channel growth," and this reflects, he said, a successful go-to-market transformation. He has revised the company's leadership, its product portfolio, the impression the market has about ERP and what SAP Cloud ERP means, and how the whole notion at the highest level of the autonomous enterprise sinks in.

04:20 — Now there's enterprise applications, agents, AI, and data vendors, and this growth streak it's had in the mid-20s has been very impressive. So the biggest challenge SAP has going forward will come, in some form that's unclear right now, from OpenAI and Anthropic, and exactly how those they are going to parlay their early focus on models into the whole agentic AI movement in the agents and workflow space.

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In today’s Cloud Wars Minute, I explore OpenAI’s bold move into AI-powered consumer hardware and what it reveals about the future of trust in artificial intelligence.

 

Highlights

00:03 — OpenAI is adding yet another string to its bow as it becomes increasingly recognized as more than just its flagship ChatGPT product. Now, the company is reportedly developing its first consumer hardware device: a human-like AI companion that lives in the home.

00:21 — The report suggests that OpenAI is creating a portable, screenless AI smart speaker, not the AI phone that many people are expecting. As you might expect, the device will integrate with ChatGPT and handle questions, send messages, play media, and enable smart home controls.

00:38 — All pretty comparable to the existing smart speakers on the market, like Amazon’s Echo. However, OpenAI’s device is also expected to include cameras and sensors to get a better understanding of where it is and the context. While mechanical moving elements will give it more presence. Over time, the AI will learn about its owner and become increasingly personalized.

01:01 — Now, beyond the obvious—and by that I mean OpenAI’s potential foray into consumer electronics and all the potential battles that might start between the leaders in that space—there’s something really interesting about the ambition here and what it says about where we are today. Not long ago, the discussion was all about trust.

01:21 — Could we get consumers to trust AI enough to get the most from it? Looking at this investment, I think the answer is yes. This is an AI that not only observes and listens to its owner, but actively changes to adapt to their likes, dislikes, and personalities, passively and without waiting for requests. This is a big jump.

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In today’s Cloud Wars Minute, I compare Microsoft’s latest cloud results with Google Cloud’s accelerating momentum.

 

Highlights

00:09 — Microsoft Cloud revenue was almost $60 billion for the quarter, up 27%. The RPO, as I said, was up 84%. It’s now the biggest RPO total, slightly ahead of Oracle. Microsoft Cloud: $678 billion for that. It said that Azure revenue was up 43% and that its revenue for the fiscal year ended June 30 exceeded $100 billion for Azure.

01:46 — So if we look at the last five quarters from Microsoft, the growth rate: 27%. Starting in Q2, the present, going back five quarters: 27%, 29%, 26%, 26%, 27%. So relatively flat over that period of time. The 29% jumped up a little, but the others, all 27s and 26s.

02:14 — Over those same five quarters, Google Cloud’s growth rate has absolutely soared, and the trajectory, the arc of its growth, representing customer demand in the marketplace, has been remarkable. So again, starting from the just-finished quarter and going backward in time: 82%, 63%, 48%, 34%, and 32% growth rates.

02:49 — What we’re talking about here is the arc of the growth. Google Cloud is getting a much bigger share of what’s happening here. It’s winning more business. It’s taking deals away from Microsoft, AWS, and perhaps Oracle as well, and they’re winning a lot of new business.

04:40 — So we’ll get AWS numbers later today. I’ll be following up next week with some insights into that and give the head-to-head comparison. It is an extraordinary time, but the ultimate truth is coming from the customers and where they are deciding to make their investments as they move into the AI Economy.

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