TLDR
- Microsoft signed a $750 million three-year Azure cloud contract with AI search startup Perplexity.
- Perplexity will access AI models from OpenAI, Anthropic, and xAI through Microsoft’s Foundry platform.
- Microsoft shares fell 9.99% on January 29 following disappointing Azure cloud growth and margin guidance.
- The deal positions Azure as a key alternative to Amazon Web Services for AI infrastructure needs.
- Analysts maintain a Strong Buy rating on Microsoft with a $603.95 average price target despite recent weakness.
Microsoft closed a $750 million cloud deal with Perplexity AI. The three-year contract expands Azure’s presence in the AI infrastructure market.
Perplexity will use Microsoft’s Foundry service to access multiple AI models. The platform provides models from OpenAI, Anthropic, and xAI in a single environment.
A Perplexity spokesperson welcomed the partnership. “We are excited to partner with Microsoft for access to frontier models from X, OpenAI and Anthropic,” they stated.
The agreement allows Perplexity to run diverse AI models for its search engine and shopping features. Microsoft has marketed Foundry as the leading solution for AI model deployment.
Perplexity valued at approximately $20 billion competes with Google and OpenAI in AI-powered search. The startup needs robust infrastructure to scale its operations quickly.
Azure Performance Disappoints
Microsoft stock dropped nearly 10% on January 29 after quarterly earnings missed expectations. Azure cloud growth came in below analyst forecasts for Q2 FY26.
The company also issued softer margin guidance for upcoming quarters. Investors reacted negatively to the weaker-than-expected outlook.
Multiple Wall Street analysts lowered their Microsoft price targets. The cuts cited underwhelming Azure performance as the primary concern.
Despite the selloff, analyst sentiment remains positive overall. Microsoft holds a Strong Buy consensus rating based on 33 Buy recommendations and one Hold.
The average analyst price target sits at $603.95. This represents potential upside of 39.3% from current trading levels.
Microsoft stock has climbed 4.5% over the past 12 months. The recent decline marks a sharp reversal after steady gains.
Cloud Infrastructure Competition
The Perplexity agreement intensifies competition between Microsoft and Amazon for AI customers. Both cloud giants are investing heavily to attract high-growth AI startups.
Amazon Web Services currently serves as Perplexity’s main cloud provider. A company spokesperson confirmed AWS remains the “preferred cloud infrastructure provider.”
Perplexity plans to announce additional AWS partnerships soon. However, the Microsoft deal provides valuable backup infrastructure.
The relationship between Perplexity and Amazon has grown tense. Amazon filed a lawsuit against Perplexity in November over its shopping agent technology.
Amazon alleges Perplexity’s “Comet” tool violates marketplace rules. The legal dispute creates an opening for Microsoft to win more business.
Foundry Gains Traction
Microsoft’s Foundry service eliminates the need for companies to manage multiple AI vendor relationships. Startups can access various models through one platform.
The $750 million deal ranks among the largest AI infrastructure agreements in 2026. It demonstrates Microsoft’s commitment to becoming the preferred cloud provider for AI applications.
The three-year term extends through 2029. This gives Microsoft a guaranteed revenue stream from one of the fastest-growing AI companies.
Perplexity has raised less capital than competitors like OpenAI and Anthropic. The Microsoft partnership provides necessary resources without requiring massive fundraising rounds.
Azure’s ability to host multiple AI models positions it as a one-stop shop for developers. This strategy aims to capture market share from Amazon Web Services and Google Cloud.
The agreement strengthens Microsoft’s position in the escalating cloud infrastructure arms race.
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