After Microsoft’s (MSFT) earnings for the second quarter of the 2024 fiscal year beat analyst estimates, Chief Executive Officer (CEO) Satya Nadella joined other corporate leaders on the company’s earnings call to talk about strong cloud earnings, scaling artificial intelligence (AI), Microsoft’s OpenAI-fueled over-performance, and an expected AI adoption cycle.
Cloud Revenue Fuels Earnings Beat
Nadella started his remarks by highlighting the company’s cloud segment saying that “Azure again took [market]share this quarter with our AI advantage.”
The CEO reported that Azure AI, which “offers the top performance for AI training and inference and the most diverse selection of AI accelerators, including the latest from AMD (AMD) and Nvidia (NVDA),” as well as Microsoft’s in-house chip, has 53,000 customers, a third of whom are new to the service in the past year.
Azure was a key driver for Microsoft in the second quarter of 2024, with cloud revenue up 20%. In the previous quarter, Microsoft’s cloud segment captured investors’ attention.
AI at Scale
Microsoft is “mov[ing] from talking about AI to applying AI at scale by infusing AI across every layer of [its] tech stack,” Nadella said, noting that the tech is contributing to the company “winning new customers and helping drive new benefits and productivity gains.”
The tech giant was early to stake its claim in the AI race through its ongoing partnership with ChatGPT-maker OpenAI as well as developing its own AI tools and hardware. Nadella has been vocal about his bullish stance on AI.
Nadella named a few big companies using Microsoft’s AI tools, including Ally Financial (ALLY), Walmart (WMT), and Coca-Cola (KO), among others.
Microsoft’s OpenAI Partnership Paying Off
Nadella reported that “Azure OpenAI and OpenAI’s own API on top of Azure” were the “major drivers” of Microsoft’s performance for the quarter.
Chief Financial Officer (CFO) Amy Hood noted that the 30% (28% in constant currency) growth seen in Azure and other cloud services revenue included “six points of growth from AI services.”
The company did not comment on recent antitrust regulatory probes into its OpenAI partnership in both the U.S. and the UK.
AI Adoption Cycle Incoming
Nadella said that Microsoft expects an AI adoption cycle as customers using the company’s AI tech see “work and workflow change.”
The CEO compared it to the adoption of the personal computer within corporate work, saying that “it first starts off with few people having access” and then “just like PCs became standard issue at some point after PCs being adopted by early adopters,” AI is expected to follow a similar cycle.