In its latest earnings call on Wednesday, Microsoft confirmed that artificial intelligence is not just part of its future strategy, but a critical component of its growing success. The tech giant, led by CEO Satya Nadella, has been inundated with good news, and attributes much of this performance to its deep and expansive integration of AI across its suite of products and services.
“It was a record quarter driven by the continued strength of Microsoft Cloud, with revenue up 24% to $33 billion,” CEO Satya Nadella said today during Microsoft’s second quarter earnings conference call. “We’ve moved from talking about AI to applying AI at scale.”
Microsoft’s investment in AI has clearly paid off. Our key multi-year partnership with OpenAI has been a key driver of OpenAI’s growth and success by giving Microsoft access to the world’s most advanced generative AI models in text, code analysis, image generation, and visual recognition. .
OpenAI has created a suite of products available for paid subscriptions, but Microsoft offers its own fine-tuned version of the same model, mostly for free, as part of its Copilot lineup, which now includes Bing, Github, Windows, and Office.
Azure, Microsoft’s representative cloud product, recorded a remarkable 30% growth in sales, a result that was directly contributed to AI services.
“Usage is growing among AI-first startups like Moveworks, Perplexity, and SymphonyAI, as well as some of the world’s largest enterprises. More than half of the Fortune 500 are now using Azure OpenAI,” Satya Nadella said during the call. “AI is redefining what the cloud looks like both at the infrastructure level and app models,” he added.
Another AI product that is seeing blockbuster growth is GitHub Copilot. Nadella described it as “the most widely deployed AI developer tool in the world.” It now has more than 1.3 million paying subscribers, up 30% this quarter.
This accelerated growth has also impacted GitHub revenue, which has surged more than 40% year-over-year thanks to the implementation of AI at its core.
Nadella’s vision for AI doesn’t stop at cloud infrastructure or developer tools. This extends to the core of the Microsoft product ecosystem. “By infusing AI into every layer of the technology stack, we are helping them win new customers and drive new benefits and productivity gains,” he asserts.
According to Nadella, the recently released Microsoft 365 Copilot is also being adopted at a faster rate than previous product launches. He outlined popular use cases, including summaries, drafting emails and documents, and chatting with Copilot in natural language to query communications and documents.
“Summary has become a big problem,” he said.
Microsoft’s gaming business also hit an all-time high, setting monthly active user 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, which is expected to increase 1-2% for the full fiscal year despite Microsoft’s large investments in AI. “Results exceeded our expectations and we delivered another quarter of double-digit top and bottom line growth.” Microsoft CFO Amy Hood said:
With demand for cloud and AI products that overcome economic volatility, Microsoft appears to have the products and efficiencies needed to fuel growth in 2024 and beyond. By embracing cutting-edge AI, the company is positioning itself increasingly comfortably in the face of fierce competition from giants like Google and Apple, which are rushing to unleash the next big thing in AI.
Edited by Ryan Ozawa.
