Artificial intelligence puts Microsoft Azure in top gear

Earnings from the Azure public cloud accounted for half of Microsoft’s $56.2bn revenue in its fourth quarter filing, with the company reporting overall annual revenue of $212bn, 7% higher than 2022.

Microsoft reported that its productivity and business processes business posted a 10% revenue increase to $18.3bn. This was driven mainly by its Office 365 Commercial business, which increased revenue by 15%.

Microsoft’s Dynamics products and cloud services increased revenue by 19%, driven by Dynamics 365 revenue growth of 26%, while revenue in its intelligent cloud business grew 15% to $24bn. The server products and cloud services part of Microsoft’s business saw a 17% revenue increase, which the company said was driven by Azure and other cloud services revenue growth of 26%. However, Windows licences to PC hardware manufacturers fell 12% and devices revenue decreased 20%.

The company sees artificial intelligence (AI) as a major opportunity, which is driving both the company’s cloud business and its data platform. “Lots of AI products pull along Azure because it’s not just the AI solution, you need to build an app,” said chief financial officer Amy Hood.

In his prepared speech during the company’s earnings call, CEO Satya Nadella discussed the opportunities of AI in the cloud. “We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage,” he said.

When asked about anecdotal evidence of increased developer productivity thanks to AI augmentation in GitHub Copilot, Nadella highlighted the opportunities to enhance other business processes using the AI-based copilots the company now offers. “There is good empirical evidence and data around the GitHub Copilot and the productivity stats around it,” he said, adding that role-based AI copilots such as Sales Copilot and Service Copilot would offer high productivity gains.

“I do think people are going to look at how they can complement their operating expense spend with essentially these copilots to drive more efficiency,” he said. “I think you’re going to see that translated into productivity stats.”

Nadella said that AI reasoning engines are complemented by data that resides in the cloud. “These AI engines are not databases, but they can reason over your data,” he said.

Microsoft and Nadella position the company’s Fabric data platform as a key pillar in its AI offering.

“With Microsoft Fabric, we’ve brought together compute, storage and governance with a very disruptive business model,” he added.

Data is stored in an Azure data lake which is then available to other Microsoft cloud-based products such as SQL Server, Spark, Azure AI or Azure OpenAI.

“I feel that Microsoft is very well positioned with the way our data architecture lays out, our business model around data, and how people will plan to use data with AI services,” said Nadella.