Microsoft's investments in generative artificial intelligence are paying off in cloud growth.
Microsoft significantly expanded its AI business last quarter. Microsoft Cloud revenue grew 23 percent to $35.1 billion, exceeding expectations, according to CFO Amy Hood.
Azure AI customers continue to grow, as does the average spend per customer. More companies are migrating their data to Azure, said Microsoft CEO Satya Nadella.
The number of Azure contracts of more than $100 million has increased by more than 80 percent year over year, while the number of contracts of more than $10 million has more than doubled.
For the current quarter, CFO Hood expects Azure revenue growth of 30 to 31 percent, driven by the Azure consumer business and the continued contribution from AI. However, growth could be slowed by limited compute availability, she said.
Microsoft invests in its own cloud growth
It's no surprise that Microsoft's cloud business is doing well. By investing in AI startups like OpenAI, Microsoft is indirectly driving its own cloud growth. Google, Amazon, and Nvidia (for GPUs) are all on the same page in this playbook, though Microsoft is certainly the master of it.
Whether generative AI will be a commercial success for Microsoft (or anyone else) as a whole remains to be seen. For that to happen, Copilot will first have to prove itself in everyday use and become profitable.
Nearly 60 percent of Fortune 500 companies use Copilot, according to Nadella. Microsoft is seeing accelerated adoption across industries and geographies. Companies such as Amgen, BP, Cognizant, Koch Industries, Moody's, Novo Nordisk, Nvidia, and Tech Mahindra have purchased more than 10,000 licenses.
The Copilot assistant built into Windows is now available on nearly 225 million Windows 10 and 11 PCs, a doubling from the previous quarter. The client is also automatically installed on Windows computers through updates, so these numbers don't tell us much. What's more interesting is the quantity and especially the quality of interactions, but the latter is especially hard to measure.