Microsoft's AI business will reach $10 billion in annual revenue next quarter, CEO Satya Nadella said during the company's quarterly earnings call.
The company beat analyst expectations with earnings of $3.30 per share on revenue of $65.6 billion, up 16%. Like Google, much of Microsoft's AI-related revenue comes from growth in cloud services. Server products and cloud services revenue grew 23%, driven by 33% growth in Azure and related cloud services.
While Azure cloud services remain the primary source of AI-related revenue, Microsoft says Microsoft 365 with Copilot is also contributing. 70 percent of Fortune 500 companies now use Microsoft 365 Copilot for some portion of their workforce.
Daily Microsoft 365 usage doubled compared to last quarter, with Copilot likely playing a role in this increase. Microsoft 365 cloud services saw a 16 percent revenue increase. GitHub Copilot's enterprise customer base grew 55 percent from the previous quarter.
Microsoft hasn't provided detailed breakdowns of specific AI services' contributions to overall AI revenue. The real-world benefits of Copilot remain unclear, though this information would help assess the sustainability of cloud growth and projected AI revenue. Cloud growth can be fueled by hype and rapid and rushed adoption, while high Copilot usage and adoption would be a sign of sustainable change.
CFO Amy Hood noted that Copilot's growth shows up in Microsoft 365's average revenue per user, particularly among frontline workers and small to medium businesses. The company offered measured expectations for Copilot, stating only that "we continue to see growth in M365 Copilot seats, and we expect the related revenue to continue to grow gradually over time."
New agent-based AI coming to Copilot
Starting in November, Microsoft plans to add autonomous agents to Copilot. Nadella outlined a three-tier strategy during the call. At the top level, Copilot functions as the main interface between users and AI systems.
The second tier allows companies to develop their own custom agents through Copilot Studio, which can integrate with CRM, Office, or HR systems. The third tier introduces new semi-autonomous agents designed to work independently, though they still require human input at specific points.
"We have built an end-to-end system for AI business transformation," Nadella said during the call.
