Growth in Microsoft’s Azure public cloud business remains strong, but the trajectory of that growth has flattened. 

Azure revenue grew 50% year over year during the company’s third quarter of fiscal year 2021, and it grew 50% during the previous quarter. The world’s second largest cloud provider doesn’t disclose its public cloud revenue in dollars.

“Over a year into the pandemic, digital adoption curves aren't slowing down. In fact they're accelerating and it's just the beginning,” Microsoft CEO Satya Nadella said on the company's earnings call. “Digital technology will be the foundation for resilience and growth over the next decade. We are innovating and building the cloud stack to accelerate the digital capability of every organization on the planet.”

Microsoft’s Intelligent Cloud segment, which includes Azure public cloud, Windows Server, GitHub, and enterprise services grew 23% year over year to $15.1 billion. The entire unit’s rate of growth was also flat, having jumped 23% in the previous quarter. 

On a constant currency basis, year-over-year growth in Azure declined from 48% in the December quarter to 46% in the quarter ending on March 31, “meaning Azure growth decelerated in the quarter,” Keith Bachman, senior research analyst at BMO Capital Markets, wrote in a research note.

“We remain confident in Azure’s growth trajectory, which we think will be primarily driven by the consumption side of the business. Specifically, we think platform-as-a-service (PaaS) consumption will be the more influential growth driver compared to infrastructure-as-a-service (IaaS) consumption and is Microsoft’s primary differentiator,” Bachman explained.

The company “grew where you would expect it to, in areas of strength and during the pandemic,” Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy, wrote in a research note. “Microsoft cloud growth was at the forefront with Azure at 50%.”

Revenue from Microsoft’s server products and cloud services increased 26% year over year to $2.7 billion, largely driven by Azure, the company reported. On-premises products experienced “weaker growth” during the quarter overall, most notably a 3% increase in server products, Moorhead noted.

Microsoft often notes that its legacy and strong position with enterprises will fuel continued growth in the cloud segment as organizations continue to shift to cloud-based services and infrastructure. The pace at which those shifts occur and the extent to which cloud revenue offsets or surpasses traditional legacy on-premises infrastructure remains a multibillion-dollar question for Microsoft and its investors.

“Whether it’s on the hybrid infrastructure or that multi-cloud, multi-edge world, which I believe is going to be the world 10 years from now, we are very well positioned,” Nadella said. He also highlighted the follow-on opportunities that Microsoft is targeting around security as businesses increasingly shift more critical IT services and workloads to the cloud.

Microsoft’s fundamental approach to security is to “ensure that every customer has implemented a zero-trust architecture. That’s the name of the game,” Nadella said. “What we have done is taken a pretty unique approach of bringing identity endpoint application infrastructure, all together with XDR (extended detection and response) and SIEM (security information and event management), which is cloud native.”

Customers that deploy these systems together gain more defense in depth, he added. “I think we are going to see increased cloud adoption. We’re going to see increased usage of end-to-end security suites like what we offer, and most importantly great hygiene and great operation security posture all the time with zero-trust architecture.”

Microsoft’s total revenue jumped 19% year over year to $41.7 billion during the quarter and net income increased 44% to $15.5 billion.