‘Cloud and AI are the essential inputs for every business’, said CEO Satya Nadella
Microsoft reported a record quarter driven by its cloud business, which saw revenues boom 22% year-over-year to $42 billion. Microsoft CEO Satya Nadella declared on the company’s quarterly call that “Cloud and AI are the essential inputs for every business to expand output, reduce costs and accelerate growth.”
Microsoft opened data centers in 10 countries during the past quarter, and Nadella emphasized “efficiencies across every layer” as it continues to build up its computing infrastructure capacity. Scaling of AI infrastructure affected the company’s margins slightly, but
The demand for that infrastructure continues to be strong. Nadella said that model capabilities are doubling in performance every six months. Meanwhile, Microsoft is seeing “accelerating demand” in cloud migrations.
Nadella said that capital expenditures are expected to increase sequentially, and that in general, it’s going to grow—but at a slower rate and with a “greater mix of short-lived assets” that are more directly related to revenues and near-term value.
However, executives also emphasized Microsoft’s long-term management strategy when it comes to capital investment in infrastructure. “The key thing for us is to have our builds and lease[s] be positioned for … the workload growth of the future,” Nadella said, adding that that includes demand, location and the type of workloads. “You don’t want to be upside-down on having one big data center in one region, when you have a global demand footprint. You don’t want to be upside down when the shape of demand changes,” he said.
Hood reminded analysts on the quarterly call that there is also a long lead-time involved in data center investment decisions, from two or three up to five to seven years.
The company is also seeing increased consumption of its analytics tools, with paid customers for its Microsoft Fabric solution (which combines data warehousing and business intelligence tools) up 80% from the same time last year. Real-time intelligence is the fastest-growing workload in the Fabric solution, Nadella said: Five months out from that feature becoming generally available, 40% of customers are using it.
Among Microsoft’s AI platform and tool offerings, Nadella said that more than 10,000 organizations are using its new agent service for building, deploying and scaling AI agents.
While revenue from the company’s AI business was “above expectations,” according to CFO Amy Hood, it was because the company was able to bring capacity for Azure AI services online faster than expected. The Azure non-AI business was the real outperformer for the quarter, Hood reiterated.
But Microsoft also emphasized AI as a technology booster. On X, formerly known as Twitter, Nadella posted a number of things he wanted to emphasize, including that “Frontier firms are incorporating AI into everyday workflows, transforming work and work artifacts.”
Meanwhile, in Microsoft’s on-premise server business, the company saw revenues fall by 6% as customers continue to shift to cloud.
Earlier this year, Microsoft Vice Chair and President Brad Smith revealed that the tech giant plans to invest approximately $80 billion into AI-enabled data centers to train AI models and deploy AI and cloud-based applications by 2025. Smith indicated that more than half of this total investment will be in the United States to capture what he called the “golden opportunity” for American AI.
Just this week, Emirati telco du announced that it will build a AED 2 billion ($544 million) hyperscale data center in the UAE, boosting national cloud and AI capabilities in partnership with Microsoft.
However, the company has also cancelled other data center build-out plans and leases in Europe and the U.S. as it adjusts its infrastructure investment strategy.
