Accounting

Microsoft’s AI bet pays off

AI doubled its contribution to Microsoft's cloud business in just one quarter.
article cover

Nurphoto/Getty Images

· less than 3 min read

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.

If we remember 2023 as the year we started talking about generative AI, it’s looking like we’ll be remembering 2024 for the tech actually being generative of serious money for Microsoft, which is riding high on its expanding partnership with OpenAI, aka the maker of ChatGPT.

In its earnings release Tuesday, Microsoft beat analysts’ expectations for earnings per share by about 6% for the quarter ending in December, according to Zacks research. More customers flocked to its Azure cloud services platform as it added more OpenAI-powered tools, giving Azure a second-straight quarter of 28% growth.

That growth beat analyst expectations by 1 percentage point, according to JPMorgan analysts in a research note shared with CFO Brew. That growth was increasingly fueled by Azure’s AI Services, which increased QoQ from 3% to 6%of overall Azure revenue, according to the investment bank.

All this, of course, follows Microsoft’s January announcement that it would be investing billions more in OpenAI, which investors rewarded by making it the world’s most valuable company, surpassing Apple.

"We’ve moved from talking about AI to applying AI at scale," CEO Satya Nadella said in a press release announcing the earnings. In a call with investors on Tuesday, he summarized some of the new OpenAI tech Microsoft added to Azure over the quarter, including its latest GPT-4 model. Nadella said that more than half of Fortune 500 companies are now using OpenAI tools on Azure.

It’s not just Nadella trumpeting AI’s role in the company’s growth. Microsoft’s lofty cloud revenues “show that the AI boom is giving a significant boost to cloud providers’ bottom line,” Forrester Principal Analyst Lee Sustar said in a commentary shared via email.

Sustar added that Google Cloud, which lost money for years, now makes up 10% of revenue for parent company Alphabet, which also reported earnings on Tuesday. In Q4, Google Cloud’s revenue increased 26% year over year. Amazon, which will release earnings Feb. 1, is the largest cloud provider through Amazon Web Services, and AWS grew 12% in the quarters ending in June and in September.

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.