In light of all the chatter about artificial intelligence (AI) stocks being in a bubble, the suggestion makes enough superficial sense. That is, the bulk of the AI industry's investments in its own growth is in the rearview mirror.
And perhaps it is.
If that's the case, however, someone might want to inform software giant Microsoft (MSFT +1.66%). As of the fiscal second quarter ending in December, its cloud arm's remaining performance obligations stood at $625 billion, more than doubling in size year over year.
For perspective on this number, Microsoft is expected to report total revenue of $328 billion for the fiscal year ending in June.
It's not just Microsoft reporting a big and growing AI backlog either. Here's what you'll want to know.
Image source: Getty Images.
A bunch of AI business is just waiting to be booked
What's a "remaining performance obligation?" That's just the technical description for future business that's already been lined up but not yet used by the paying customer, and therefore not yet booked as revenue.
The exact time frame is not yet known for when these obligations will be converted into reportable revenue resulting from its cloud customers receiving their contracted service. However, it's possible to have a rough idea for most of it, though.
In its quarterly Securities and Exchange Commission (SEC) filing, Microsoft explained: "We expect to recognize approximately 25% of both our total company remaining performance obligation revenue and commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter." The weighted-average duration of what's remaining of these obligations stands at 2.5 years.
NASDAQ: MSFT
Key Data Points
Rival Oracle (ORCL +5.66%) is doing pretty well in this regard, too, and arguably painting a clearer and even more bullish picture of the growth that awaits the cloud-accessed computing aspect of the AI business. Its remaining performance obligations reached $553 billion during the three-month stretch ending in February. Of that, only $18 billion is expected to be booked in the fiscal year ending in May. This number is projected to grow every year through 2030; the company currently expects to do $144 billion worth of cloud-infrastructure business.
Even slowing growth would still be amazing growth
Take all the numbers with at least a small grain of salt. Neither company has offered any details about the potential for customer cancellations of these service contracts. It's conceivable that at least some of them will wish to cancel their agreement.
Conceivable, but not likely.
See, even if the growing demand for AI cools, it's still growth from a situation where the need far exceeds the supply. It seems unlikely any outfit already utilizing an AI platform -- or that's already booked future access -- is going to give it up now even if the business as a whole isn't quite as hot as it seemed to be just last year. In this vein, industry researcher Technavio still believes the global AI infrastructure market is poised to expand at an average annual pace of nearly 25% through 2030.
The biggest risk here is simply that Oracle, Microsoft, and their peers will end up spending heavily to build the infrastructure they've already promised their existing customers they'd have in the foreseeable future.
That's still not exactly a tragic prospect. This added computing capacity will be utilized somehow by someone, at least covering its cost.
