AI Is Key to Microsoft’s Blockbuster Growth, Quarterly Earnings Show

In its latest earnings call on Wednesday, Microsoft affirmed that artificial intelligence is not just a part of its future strategy—it’s a critical component of its growing success. The tech giant, led by CEO Satya Nadella, was overflowing with good news, and credited a significant portion of this achievement to its deep and expanding integration of AI across its suite of products and services.

“It was a record quarter, driven by the continued strength of the Microsoft Cloud, which surpassed $33 billion in revenue, up 24%,” said CEO Satya Nadella in Microsoft’s second-quarter earnings conference call today. “We’ve moved from talking about AI to applying AI at scale.”

Microsoft’s bet on AI has clearly been paying off. The company’s major multiyear partnership with OpenAI has been a main driver of its success (along with growth at OpenAI), as it gave Microsoft access to the world’s most advanced generative AI models in the fields of text, code analysis, image generation and visual recognition.

While OpenAI has made its suite of products available for a paid subscription, Microsoft offers its own fine tuned versions of the same models mostly for free as part of its Copilot lineup—which now includes Bing, Github, Windows and Office.

Azure, Microsoft’s flagship cloud offering, notched a staggering 30% growth in revenue, an achievement that was also attributed directly to AI services.

“We are seeing increased usage from AI-first startups like Moveworks, Perplexity, SymphonyAI as well as some of the world’s largest companies. Over half of the Fortune 500 use Azure OpenAI today,” Satya Nadella said ​during the call. “AI is just redefining what the cloud looks like both at the infrastructure level and the app model,” he added.

Another AI product seeing blockbuster growth is GitHub Copilot, which Nadella described as “the world’s most widely deployed AI developer tool.” It now has over 1.3 million paid subscribers, up 30% in the quarter.

This accelerated growth also impacted the GitHub revenue, surging over 40% year-over-year thanks to the implementation of AI into its core.

Nadella’s vision for AI doesn’t stop at cloud infrastructure or developer tools. It extends to the very core of Microsoft’s product ecosystem. “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains,” he asserts.

The recently launched Microsoft 365 Copilot is also seeing rapid uptake compared to previous suite launches according to Nadella. He outlined popular use cases like summarization, drafting emails and documents, and chatting with Copilot in natural language to query communications and documents.

“Summarization has become a big deal,” he said.

Microsoft’s gaming business also hit all-time highs, with monthly active users records across Xbox, PC and mobile. The Activision Blizzard acquisition contributed to 49% year-over-year gaming revenue growth.

Rounding out the strong quarter was operating margin, forecast to increase 1-2% for the full fiscal year even amidst Microsoft’s sizable investments in AI. “Results exceeded expectations and we delivered another quarter of double digit top and bottom-line growth.” Microsoft’s CFO Amy Hood said.

With demand for its cloud and AI offerings overcoming economic volatility, Microsoft appears to have the products and efficiency needed to drive growth in 2024 and beyond. Its embrace of cutting-edge AI is increasingly ensuring the company sits in a comfortable spot in what promises to be a fierce race against giants like Google and Apple, all rushing to bring us the next big thing in AI.

Edited by Ryan Ozawa.

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