Dive Brief:
- Microsoft’s cloud segment revenue grew to $31.8 billion, up 24% year over year for the three-month period ending Sept. 30, the company said Tuesday in its Q1 2024 earnings report.
- The hyperscaler saw quarterly cloud revenue growth stall earlier this year, as companies turned to optimizing existing workloads. “In Azure, as expected, the optimization trends were similar to Q4,” CFO Amy Hood said, but “higher than expected AI consumption contributed to revenue growth.”
- The company is banking on a full-stack AI strategy, with ChatGPT, Bing Chat and all of the company’s copilot tools sharing the same model, Satya Nadella, chairman and CEO of Microsoft, said. “We have scale leverage of one large model that was trained and one large model that’s being used for inference across all our first-party SaaS apps, as well as our API in our Azure AI Service,” he said.
Dive Insight:
Large language models and the generative AI tools they power have gained traction in the Microsoft ecosystem. But they aren’t the only drivers of Azure usage and revenue growth.
Nadella cited three forces behind increases in enterprise cloud consumption: data migration, additional enterprise workloads and generative AI.
“We have seen complete new project starts, which are AI projects,” said Nadella. “AI projects are not just about AI meters. They have lots of other cloud meters as well.”
“We are in the very, very early innings there. And so, we look forward to seeing the traction for these products going forward,” Nadella added.
Azure and other cloud services increased revenue by 29% year over year, the report said, a growth spurt that helped offset infrastructure build-out costs.
Microsoft and its hyperscaler competitors AWS and Google Cloud are racing to bolster their data centers with high-performance chips to handle an expected surge in compute-intensive AI workloads.
Already, Microsoft has over 1 million subscribers to its Copilot, a suite of AI-enabled enterprise tools in Microsoft 365, and 37,000 organizations using Copilot for Business, according to Nadella.
“We’re becoming the Copilot-led business process transformation layer on top of existing CRM systems like Salesforce,” Nadella said.
As Microsoft moves forward with plans to deploy AI across its tech stack, infrastructure investments will remain a priority, Hood said, noting that increased GPU capacity contributed to higher-than-expected quarterly growth in per-user business.
“We expect capital expenditures to increase sequentially on a dollar basis driven by investments in our cloud and AI infrastructure,” Hood said.
