AI is key to Microsoft’s blockbuster growth, quarterly earnings show.
10 months ago Benito Santiago
Artificial intelligence isn't just part of its future strategy — it's a critical component of its growing success, Microsoft said in its latest earnings call on Wednesday. The tech giant, led by CEO Satya Nadella, has been full of good news, and a big part of this success has been the deepening and expanding integration of AI into its suite of products and services.
Microsoft's second quarter earnings conference call today was a record quarter driven by the continued strength of Microsoft Cloud, which topped $33 billion in revenue. “We've moved from talking about AI to implementing AI at scale.”
Microsoft's bet on AI is paying off. The company's main multi-year partnership with OpenAI has been the main driver for its success, as it has allowed Microsoft to access the world's most advanced generative AI models in the field of text, code analysis, image generation and visual recognition (along with the development of OpenAI).
While OpenAI offers its suite of products for a paid subscription, Microsoft offers its own fine-tuned versions of the same models mostly for free as part of its Copyright lineup—which now includes Bing, Github, Windows, and Office.
Azure, Microsoft's flagship cloud offering, posted an impressive 30% revenue growth, a success attributed directly to AI services.
“We're seeing it being used by companies like Moveworks, Perplexity, SymphonyaAI, and some of the world's largest companies. More than half of the Fortune 500 use Azure OpenAI today,” Satya Nadella said during the call. “AI is redefining what the cloud looks like at the infrastructure level and the application model,” he added.
Another AI product that has seen blockbuster development is GitHub Copilot, which Nadella described as “the world's most widely distributed AI developer tool.” It now has more than 1.3 million paid subscribers, up 30% in the quarter.
This accelerated growth has had an impact on GitHub's revenue, which grew by more than 40% year-over-year as AI became a mainstream application.
Nadella's vision of AI doesn't stop at cloud infrastructure or developer tools. It extends to the core of Microsoft's product ecosystem. “By incorporating AI into our technology stack, we're winning new customers and enabling new benefits and productivity gains,” he asserts.
The recently launched Microsoft 365 Copilot is also seeing faster service compared to previous Nadellas. It lists popular use cases such as summarizing, capturing emails and documents, and communicating with Copilot and communicating in natural language to request documents.
“Summary has become a big issue,” he said.
Microsoft's gaming business has hit an all-time high with monthly sales across Xbox, PC and mobile. Activision Blizzard's acquisition contributed to 49% year-over-year game revenue growth.
Completing the strong quarter was operating margin, which is forecast to increase 1-2 percent for the fiscal year amid Microsoft's heavy investments in AI. “Results exceeded expectations and we delivered another quarter of double-digit top and bottom line growth.” Microsoft CFO Amy Hood said.
With cloud demand and AI offerings overcoming economic volatility, Microsoft appears to have the products and agility needed to drive growth through 2024 and beyond. The company's embrace of AI is proving to be well positioned for what promises to be stiff competition from giants like Google and Apple, all of whom are rushing to come up with the next big thing in AI.
Edited by Ryan Ozawa.