Copilots, AI and Azure drive Microsoft revenue growth

Microsoft has posted revenue of $56.5bn, up 13% for the quarter ended September 30, 2023, partially driven by demand for its AI-infused (artificial intelligence) products and the Azure public cloud.

CFO Amy Hood said the company’s Azure cloud platform had experienced higher than expected AI consumption, which contributed to revenue growth in Azure.

The company reported that its cloud business, Microsoft Cloud, grew 24% to $31.8bn. There was also a slight improvement in margins in the cloud business due to the impact of extending the life of Azure datacentre equipment.

Its productivity and business processes unit posted revenue of $18.6bn and grew 13%, driven by what Hood described as “better-than-expected results in Office 365 commercial and LinkedIn”.

Revenue in intelligent cloud was $24.3bn, while its more personal computing business posted revenue of $13.7bn.

With its Office product, Microsoft saw a 17% decline in commercial licence revenue as business customers shifted to cloud offerings. Office 365 commercial posted a revenue increase of 18%.

Hood said Microsoft’s enterprise mobility and security installed base grew 11% to more than 259 million seats, while the company’s on-premise server business reported revenue growth of 2%, driven by what she said was demand in advance of Windows Server 2012 end of support.

When asked about Azure growth, CEO Satya Nadella discussed what he describes as “a core migration story” around Oracle workloads: “Once we announced that the Oracle databases are going to be available on Azure, we saw a bunch of new customers who have a significant Oracle estate that have not yet moved to the cloud, because they needed to rendezvous with the rest of the app estate in one single cloud.”

He added that among the big opportunities for Microsoft is the financial sector, which runs a lot of Oracle that still needs to move to the cloud.

Workload optimisation is another driver behind Azure growth, according to Nadealla: “We’ll lap some of those optimisation cycles that were fairly extreme, perhaps in the second half of our fiscal.”

AI is the third growth opportunity for Microsoft, he said: “Given our leadership position, we have seen complete new project starts, which are AI projects.” Not only do AI workloads drive adoption of Microsoft’s AI offerings, but AI also drives Azure growth.

When asked about Microsoft Copilot AI offerings, Nadella said 40% of the Fortune 100 are already in the preview and are using the product: “It’s not any one tool. You just keep hitting the copilot button across every surface, whether it’s in Word to create documents, in Excel to do analysis, or PowerPoint or Outlook or Teams.

“The Teams meeting is an intelligent recap, not just a dumb transcript. It’s like having a knowledge base of all your meetings that you can query and add to, essentially, the knowledge terms of your enterprise.”

Nadella said Microsoft plans to embed AI across its technologies. “We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers. With Copilots, we are making the age of AI real for people and businesses everywhere,” he said.

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