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Microsoft Credits Azure Growth to Its Big AI Gamble

• By David Ramel
• 02/06/2024

There's no better bellwether today of a tech giant's fortunes than whether or not it has made the pivot toward AI.

As the purveyor of an ever-expanding line of Copilot AI assistantsand the biggest benefactor of generative AI darling OpenAI, Microsoft has bet billions on AI's viability and adoption in the enterprise. Microsoft CEO Satya Nadella recently indicated how important OpenAI was to Microsoft when he appeared during a keynote presentation at the first-ever OpenAI DevDay.

The gambit, so far, is paying off. For its second-quarter earnings report, the company reported an 18 percent year-over-year revenue increase to $62.0 billion. More to the point, its cloud revenue -- which includes numbers from cloud-based software like Microsoft 365, as well as the Azure platform -- increased by 24 percent, to total $33.7 billion. Azure revenue itself jumped by 30 percent (the exact dollar amount was not revealed).

Azure is a pivotal piece of Microsoft's AI efforts. The company has made Azure a hub for developers looking to access AI models and build generative AI-capable applications. To support the compute power needed to run AI workloads -- both its own and its customers' -- Microsoft is looking into producing its own AI accelerator chip, Maia, designed specifically for Azure hardware.

"It was a record quarter, driven by the continued strength of Microsoft Cloud," Nadella said at the start of the earnings call, according to a transcript provided by MarketBeat. "We moved from talking about AI to applying AI at scale by infusing AI across every layer of our tech stack."

Toward the end of the call, Nadella was asked about the company's ability to drive ARPU (Average Revenue Per Unit or Average Revenue Per User) on GitHub Copilot over time. GitHub Copilot is a so-called "AI pair programmer" from Microsoft-owned GitHub.

"Yes. It's -- I always go back to sort of my own conviction that this generation of AI is going to be different, started with the move from 2.5 to 3 of GPT and then its use inside of an Office scenario with GitHub Copilot," Nadella said. "And so yes, I think this is the place where it's most evolved in terms of its economic benefits or productivity benefits."

Here are some data points and numbers revealed by Nadella in the call.

• We now have 53,000 Azure AI customers.
• GitHub revenue accelerated to over 40 percent year-over-year, driven by all-up platform growth and adoption of GitHub Copilot, the world's most widely deployed AI developer tool.
• We now have over 1.3 million paid GitHub Copilot subscribers, up 30 percent quarter-over-quarter, and more than 50,000 organizations use GitHub Copilot Business to supercharge the productivity of their developers from digital natives like Etsy and HelloFresh to leading enterprises like Autodesk, Dell Technologies and Goldman Sachs.
• This quarter, we added support for OpenAI's latest models, including GPT-4 Turbo, GPT-4 with Vision, DALL-E 3, as well as fine-tuning.
• Over half of the Fortune 500 use Azure OpenAI today, including Ally Financial, Coca-Cola and Rockwell Automation. For example, at CES this month, Walmart shared how it's using Azure OpenAI service, along with its own proprietary data and models, to streamline how more than 50,000 associates work and transform how its millions of customers shop.
• We're also the leader in low-code/no-code development, helping everyone create apps, automate workflows, analyze data, and now, build custom copilots. More than 230,000 organizations have already used AI capabilities in Power Platform, up over 80 percent quarter-over-quarter.
• With Copilot Studio, organizations can tailor Copilot for Microsoft 365 or create their own custom copilots. It has already been used by over 10,000 organizations, including An Post, Holland America, PG&E.
• In sales, our Copilot has helped sellers at more than 30,000 organizations, including Lumen Technologies and Schneider Electric, to enrich their customer interactions using data from Dynamics 365 or Salesforce.
• With our new Copilot for Service, employees at companies like Northern Trust can resolve client queries faster. It includes out-of-the-box integrations to apps like Salesforce, ServiceNow and Zendesk.
• In healthcare, DAX Copilot is being used by more than 100 healthcare systems, including Lifespan, UNC Health and UPMC, to increase physician productivity and reduce burnout.
• Early Copilot for Microsoft 365 users were 29 percent faster in a series of tasks like searching, writing and summarizing.
• Copilot in Windows is already available on more than 75 million Windows 10 and Windows 11 PCs.
• With Copilot for Security, we're now helping hundreds of early access customers, including Cemex, Dow, LTIMindtree, McAfee, Nucor Steel, significantly increase their SecOp teams' productivity.
• This quarter, we extended Copilot to Entra, Intune and Purview. All up, we have over 1 million customers, including more than 700,000 who use four or more of our security products like Arrow Electronics, DXC Technology, Freeport-McMoRan, Insight Enterprises, J. B. Hunt and The Mosaic Company.
• We also introduced Copilot as a standalone destination across all browsers and devices, as well as a Copilot app on iOS and Android. And, just two weeks ago, we introduced Copilot Pro, providing access to the latest models for quick answers and higher-quality image creation, and access to Copilot for Microsoft 365 Personal and Family subscribers.

As Copilot AI gets infused into more Microsoft software -- and even into the Windows OS itself -- expect more new AI-generated offerings to appear with associated price hikes to help recoup that $10 billion-plus investment in AI.