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5,100 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | terms of value. And so we are in the very early innings there, and so we look forward to seeing the traction for these products going forward. |
5,101 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Keith, maybe just a few things to add and then I'll talk a little bit about the operating leverage, which is the second part of your question. In general, we saw very consistent execution from Q4 to Q1, and that's what we're talking about into Q2. I think that speaks to our value prop, which is where Satya went. It speaks to making sure that customers are getting a very quick return on value, real productivity improvement, real savings, so that when we're asking at renewal or talking about E5 upgrades or talking about AI services, that those come with real promises of high-value scenarios. And so I think that is an important piece as you think about, stability and commercial demand. And then if you think about the nature of your question, it was partially why I talked about in my full-year guidance that, now, even with the addition of Activision and purchase accounting impacts, and integration impacts, we still feel confident we can deliver consistent operating margins to last year. And it speaks to, I think, some of the improvements, we're making in Azure and even in Microsoft 365 gross margins, even in the core of the commercial cloud. It speaks to the pace at which we are delivering AI revenue with the increasing cost expense and capital investment ahead with the demand we see. And, although you're right, our operating expense comparables in H2 get more challenging than in H1, we're really focused on making sure that every dollar we put and commit is back to the priorities we talked about, which is commercial cloud leadership and leading the AI wave. And so I think that focus is really helping on both execution and leverage.
Keith Weiss: Excellent. Thank you, guys.
Brett Iversen: Thanks, Keith. Joe, next question, please.
Operator: Your next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed. |
5,102 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Operator: Your next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed.
Mark Moerdler: Thank you very much and congratulations on a really strong quarter. AI has been far stronger than expected, beat your guidance for Azure this quarter. And while you discussed higher utilization and more GPUs have helped, has the fact that Microsoft has a full AI devstack Copilot reference architecture and plugin architecture bidding a meaningful factor, not just from a revenue perspective, but also even potentially from a margin perspective? In addition, can you give us any color on whether Azure GPU is predominantly model training or are we seeing a lot of inferencing yet from clients? Thanks. |
5,103 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: No. Thank you for the question, Mark. Yeah, it is true that we have -- the approach we have taken is a full stack approach all the way from whether it's ChatGPT or Bing Chat or all our Copilots, all share the same model. So in some sense, one of the things that we do have is very, very high leverage of the one model that we used -- which we trained, and then the one model that we are doing inferencing at scale. And that advantage sort of trickles down all the way to both utilization internally, utilization of third parties, and also over time, you can see the sort of stack optimization all the way to the silicon because the abstraction layer to which the developers are riding is much higher up than low-level kernels if you will. So, therefore, I think there is a fundamental approach we took, which was a technical approach of saying we'll have Copilots and Copilot stack all available. That doesn't mean we don't have people doing training for open source models or proprietary models. We also have a bunch of open source models. We have a bunch of fine-tuning happening, a bunch of RLHF happening. So there's all kinds of ways people use it. But the thing is, we have scale leverage of one large model that was trained and one large model that's being used for inference across all our first-party SaaS apps, as well as our API in our Azure AI service…
Amy Hood: And the reason, Mark, that's important is that it means, even beyond the point Satya made is that, when it comes to our ability to leverage the infrastructure that we're building out, we don't really have a preference in terms of how people are utilizing that infrastructure, whether it's through all the means that Satya mentioned. It gives us a good opportunity to see quick conversion into revenue. |
5,104 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yeah. I mean, one other thing I'd just add to perhaps Mark's question as well as Keith's is, this platform transition, I think is very important for us to be very disciplined on both. I'll call our tech stack as well as our capital spend all to be concentrated. The lesson learned from the cloud side is -- we're not running a conglomerate of different businesses, it's all one tech stack up and down Microsoft's portfolio, and that, I think, is going to be very important because that discipline, given what the spend like -- it will look like for this AI transition any business that's not disciplined about their capital spend accruing across all their businesses could run into trouble.
Mark Moerdler: Extremely helpful. Thank you so much.
Brett Iversen: Thanks, Mark. Joe, next question, please.
Operator: Your next question comes from the line of Brent Thill with Jefferies. Please proceed.
Brent Thill: Thanks, Amy. Good to see the 12% growth. Many investors are asking, can you sustain double-digit growth, especially with a stronger AI boost coming in the next several quarters?
Amy Hood: I think looking at our -- as I said, Q1 was a strong start to the year, Q2 certainly implies that. We've talked about stability for Azure into the second half of the year looking at and in line with what we're seeing for Q2. And so I think we feel good about our ability to execute, but more importantly, our ability to continue to take share.
Brett Iversen: Thanks, Brent. Joe, next question, please.
Operator: The next question comes from the line of Raimo Lenschow with Barclays. Please proceed.
Raimo Lenschow: Hey. Thank you. You sound very optimistic about the opportunity in the office space with Copilot coming out now very soon. Can you speak a little bit about -- what you're seeing in the customer base that tested this already in terms of how excited they were -- the special features there, and what does it mean in terms of adoption curve for that going forward once you go GA on 1st of November? Thank you. |
5,105 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: No. Thanks. The question, Ramo, the good news is two-fold, one is the fact that, what is 40% of the Fortune 100 are already in the preview and are using the product and I think you all have also done lots of checks and the feedback is very, very positive. And, in fact, the interesting thing is, it's not any one tool, right? Which is the feedback even sort of is very clear that it's the all up. You just keep hitting the Copilot button across every surface, right, whether it's in Word to create documents, in Excel to, do analysis, or PowerPoint or Outlook or Teams just like that. Clearly, the Teams meeting, which is an intelligent recap, it's not just a dumb transcript. It's like having a knowledge base of all your meetings that you can query and add to essentially the knowledge terms of your enterprise. And so we are seeing broad usage across and the interesting thing is, by different functions, whether it's in finance or in sales by roles, we are seeing productivity gains like we saw with developers and GitHub Copilot. So that's the data. We are very excited about our Ignite conference, where we will talk a lot more about all of the use cases and what's -- where's the value and give more prescriptive guidance on how people can deploy. But so far so good, as far as the data is and the feedback is. And of course, this is an enterprise product, I mean, at the end of the day, we are grounded on enterprise cycle times in terms of adoption and ramp, and it's incrementally priced, so, therefore that all will apply still. But at least for something completely new to have this level of usage already and this level of excitement is something we're very, very pleased with.
Raimo Lenschow: Thank you.
Brett Iversen: Thanks, Raimo. Joe, next question, please.
Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed. |
5,106 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed.
Karl Keirstead: Okay. Great. Thanks, Amy. Congrats on the 28% constant currency Azure growth, that's terrific. I wanted to press you a little bit on the outlook for Azure. You're obviously guiding to a 1 to 2 point decel in December and then stable thereafter. But why would it be stable? Why wouldn't it accelerate in the -- in the second half of your fiscal year, if the AI contribution is increasing as you bring on more GPU capacity? Is this a function of perhaps continued Core ex-AI Azure spend optimization, continuing or maybe even getting slightly worse? Why couldn't we see some upside in that Azure number? I know you're trying to be conservative, but I'd just love to understand it? Thanks so much. |
5,107 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Karl. A couple of things. As I talked about Q2 and then into H2. We've been very consistent that the optimization trends have been consistent for us through a couple of quarters now. Customers are going to continue to do that. It's an important part of running workloads that is not new. There obviously were some quarters where it was more accelerated, but that is a pattern that is and has been a fundamental part of having customers, both make new room for new workload adoption and continue to build new capabilities. And so I think that impact remains through the rest of the year, and my view is unchanged on that. And then of course, I think the key component has always been new workload starts. And at the scale we're talking about, being able to have stability in our Azure business, does mean that we will have a lot of new workload starts. And primarily we're expecting those to come from AI workloads. But AI workloads don't just use our AI services. They use data services and they use other things. And so that combination, I think, looking on a competitive basis, we feel good about our execution, we feel good about taking share and we feel good about consistent trends. And so I feel good about that guide and what it says about where we are on share.
Karl Keirstead: Okay. Terrific. Thanks.
Brett Iversen: Thanks, Karl. Joe, next question, please.
Operator: The next question comes from the line of Brad Sills with Bank of America. Please proceed.
Bradley Sills: Wonderful. Thanks so much. Very impressive to see the Office 365 commercial seat growth hanging in here in that double digit range. It's very impressive just given the scale of that business. We think of Office as having such a dominant market position. Curious, how you think about the -- where that seat is coming from and how many more of those seats are out there to go get? |
5,108 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks for that question, and maybe I'll take that Satya if you -- if you want to add. In general, our seat growth has -- it does come from all segments, but with particular strength in small and mid-sized businesses, as well as what we call the frontline worker opportunity. And that has been, I would say, looking back a number of quarters where the majority of our seat growth has gone. And while obviously, it slowed a bit to your point, I think the fact that we're still able to add seats at this level speaks to the broadening nature of what Microsoft 365 needs. It's more applicable to more people. And so I think many people have thought, oh my goodness, you've got a lot of customers already. And we look and say, how many people when you expand what Microsoft 365 means, whether it's the security or it means analytics or it means Teams, it means lots of things in an expanding definition. It applies to more types of workers. And frankly, the value is such, especially on the small business front, where it's to the point where I think people feel like it's a great way to spend even the spend money they have is -- this remains a pretty compelling offer.
Bradley Sills: Thank you.
Brett Iversen: Thanks, Brad. Joe, next question, please.
Operator: Your next question comes from the line of Brent Bracelin with Piper Sandler. Please proceed.
Brent Bracelin: Thank you. Good afternoon. One thing that really stood out to me was the intelligent cloud segment operating margins. These came in, I think, at the highest level in six years, despite elevated AI investments. Was there a one-time tailwind here that helped? Or are you at the point where Azure has got economies of scale, where Microsoft could sustain high margins even with an ambitious AI investment cycle? |
5,109 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: You think -- thanks for that question. I think there are a couple things going on and I do -- I would say in particular, this was a very good leverage quarter in that segment. Number one, the Azure revenue growth and the stability we're seeing in it, absolutely is that help the operating leverage. The second component of that is in our core Azure business. The team continues to deliver thoughtful gross margin improvement across both technical decisions, software implementations. Our teams on the infrastructure build side have done really good work to deliver that, and so that's been helpful as well. And then, of course, on operating expenses, there's been a good focus on continuing even within that segment, to make sure we're focusing that work on leading in the AI transition with Azure. And so you're right, even as we're investing in AI infrastructure, which will and should show up as revenue, it'll also show up in COGS and still deliver good margin. But this does have a slightly -- as I talked about earlier, easier comp in Q1 and Q2, given it was some of our highest growth operating expense quarters in our company's history a year ago.
Brent Bracelin: Makes sense. Thank you.
Brett Iversen: Thanks, Brent. Joe, we have time for one last question.
Operator: Our last question will come from the line of Gregg Moskowitz with Mizuho. Please proceed.
Gregg Moskowitz: Okay. Thank you very much for taking the question. And maybe just a follow-up to what Brent was just asking about, but on the gross margin line. Amy, the Microsoft cloud gross margin is up 2 points year-over-year, excluding the useful life change, a little more improvement than we've seen in some time and some investors were worried that it might go in the other direction, given increased AI investments. And so, as you look forward, do you think that you could drive some continued gross margin improvement over the medium term and even as higher CapEx will filter into the model? Thanks. |
5,110 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Yeah. Let me break that into two components, because they're both important and it's a really good question, Gregg. On our core business, the core Azure business, the core Office 365, M365 business, Dynamics business, they're -- they continue to deliver gross margin year-over-year improvements in the core. And so that, like in other quarters has helped this quarter. In addition, what Satya mentioned earlier in a question, and I just want to take every chance to reiterate it, if you have a consistent infrastructure from the platform all the way up through its layers, then every capital dollar we spend, if we optimize revenue against it, we will have great leverage, because wherever demand shows up in the layers, whether it's at the SaaS layer, whether it's at the infrastructure layer, whether it's for training workloads, we're able to quickly put our infrastructure to work generating revenue, or on our Bing workloads. I mean, I should have mentioned all the consumer workloads use the same frame. And so when you think about our investment in AI, yes, it will -- because we're committed to leading this wave and see demand, you will see that impact in COGS growth. But what we're committed to doing is making sure it's highly leveraged and making sure you see the same growth in revenue. And I think on occasion, you may see something pick up 1 or 2 points and the other one not quite get there, but the point is, it's going to be very well paired because of the choices we've made over the past, frankly, numerous years, to get to a point where that infrastructure is consistent.
Satya Nadella: And I'll just add that it'll be very well paired at the company level. I realize all of you care a lot about each one of our segments and each one of our KPIs, and I do too, but at the end of the day, our stack and the way it works, the way we do our capital allocation, the way we think about even the optimization of the demand to utilization is across the entirety of all of our segments and all of our products. |
5,111 | MSFT | 1 | 2,024 | 2023-10-24 17:30:00 | Microsoft Corporation | 21,835 | Gregg Moskowitz: Very helpful. Thanks.
Brett Iversen: Thanks, Gregg. That wraps up the Q&A portion of today's earnings call. Thank you for join us today and we look-forward to speaking with all of you soon.
Amy Hood: Thank you.
Satya Nadella: Thank you.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. |
5,112 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: Greetings, and welcome to the Microsoft Fiscal Year 2025 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jonathan Neilson, Vice President of Investor Relations. Please go ahead. |
5,113 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today’s call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today’s call. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's third quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements which are |
5,114 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I’ll turn the call over to Satya. |
5,115 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Jonathan. It was a record quarter, driven by continued strength of Microsoft Cloud, which surpassed $42 billion in revenue, up 22% in constant currency. Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth. Now, I will highlight examples, starting with infrastructure. We continue to expand our data center capacity. This quarter alone, we opened DCs in 10 countries across four continents. Model capabilities are doubling in performance every six months, thanks to multiple, compounding scaling laws. We continue to optimize and drive efficiencies across every layer – from DC design, to hardware and silicon, to systems software, to model optimization – all towards lowering costs and increasing performance. You see this in our supply chain, where we have reduced dock-to-lead times for new GPUs by nearly 20%. Across our blended fleet, where we have increased AI performance by nearly 30% ISO power. And, our cost per token, which has more than halved. When it comes to cloud migrations, we saw accelerating demand, with customers in every industry, from Abercrombie & Fitch Co., to Coca-Cola and ServiceNow, expanding their footprints on Azure. And we remain the cloud of choice for customers’ mission critical VMWare, SAP, and Oracle workloads, with more regional availability than any other hyperscaler. We are also excited about the next frontier in cloud systems with quantum. In addition to putting our quantum stack on machines from our partners, we are also making real progress on a path to a utility scale quantum computer with the introduction of Majorana-1. When it comes to data and analytics, we have deeply integrated our AI platform with our data stack. PostgreSQL usage accelerated for the third consecutive quarter, and it is now used by nearly 60% of the Fortune 500 including companies like BMW and BNY Mellon. Cosmos DB revenue growth also accelerated again this quarter and remains the go-to database for globally distributed NoSQL |
5,116 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Cosmos DB revenue growth also accelerated again this quarter and remains the go-to database for globally distributed NoSQL workloads at any scale. It is used by customers in every industry like CarMax, DocuSign, NTT Data, and OpenAI. This quarter, we also saw analytics consumption accelerate. Microsoft Fabric has more than 21,000 paid customers, up 80% year-over-year. Fabric brings together data workloads like data warehousing, data science, real-time intelligence, along with Power BI, into one end-to-end solution. Real-time intelligence is now the fastest growing workload in Fabric, with 40% of customers already using it just five months since becoming generally available. All up, more than 50% of Fabric customers – like Amore Pacific, Louisiana state government, and Petrobras – use three or more workloads. And the amount of data in our multi-cloud data lake OneLake has grown more than 6X over the past year. Now, on to AI platforms and tools. Foundry is the agent and AI app factory. It is now used by developers at over 70,000 enterprises and digital natives – from Atomicwork, to Epic, Fujitsu, and Gainsight, to H&R Block and LG Electronics – to design, customize, and manage their AI apps and agents. We processed over 100 trillion tokens this quarter, up 5X year-over-year – including a record 50 trillion tokens last month alone. And four months in, over 10,000 organizations have used our new Agent Service to build, deploy, and scale their agents. This quarter we also made a new suite of fine-tuning tools available to customers with industry-leading reliability. And we brought the latest models from OpenAI, along with new models from Cohere, DeepSeek, Meta, Mistral, Stability to Foundry. And we have expanded our Phi family of SLMs with new multimodal and mini models. All up, Phi has been downloaded 38 million times. And our research teams are taking it one step further, with BitNet b1.58, a billion parameter large language model that can run on just CPUs, coming to the Foundry. Now, on to developer tools. We are |
5,117 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | a billion parameter large language model that can run on just CPUs, coming to the Foundry. Now, on to developer tools. We are evolving GitHub Copilot from pair to peer programmer. With agent mode in VS Code, Copilot can now iterate on code, recognize errors, and fix them automatically. This adds to other Copilot agents like Autofix, which helps developers remediate vulnerabilities, as well as Code Review Agent, which has already reviewed over 8 million pull requests. And we are previewing a first-of-its-kind SWE agent capable of asynchronously executing developer tasks. All-up, we now have over 15 million GitHub Copilot users, up over 4X year-over-year. And both digital natives like Twilio and enterprises like Cisco, HPE, SkyScanner, and Target, continue to choose GitHub Copilot to equip their developers with AI throughout the entire dev lifecycle. With Visual Studio and VS Code, we have the world’s most popular editor, with over 50 million monthly active users. And with Power Platform we have the leading low code platform for AI makers too. We now have 56 million monthly active Power Platform users, up 27% year-over-year, who increasingly use our AI features to build apps and automate processes. Now, on to the future of work. Microsoft 365 Copilot is built to facilitate human-agent collaboration. Hundreds of thousands of customers across geographies and industries now use Copilot, up 3X year-over-year. Our overall deal size continues to grow, and this quarter, we saw a record number of customers returning to buy more seats. And we are going further. Just last week, we announced a major update, bringing together agents, notebooks, search, and create into a new scaffolding for work. Our new Researcher and Analyst deep reasoning agents analyze vast amounts of web and enterprise data to deliver highly-skilled expertise on demand directly within Copilot. Beyond horizontal knowledge work, we are introducing agents for every role and business process. Our Sales Agent turns contacts into qualified leads, and with Sales |
5,118 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | are introducing agents for every role and business process. Our Sales Agent turns contacts into qualified leads, and with Sales Chat reps can quickly get up to speed on new accounts. And our Customer Service Agent is deflecting customer inquiries and helping service reps resolve issues faster. With Copilot Studio, customers can extend Copilot and build their own agents with no-code/low code. More than 230,000 organizations – including 90% of the Fortune 500 – have already used Copilot Studio. With deep reasoning and agent flows in Copilot Studio, customers can build agents that perform more complex tasks, and also handle deterministic scenarios like document processing and financial approvals. And they can now build “computer use” agents that take action on the UI across desktop and web apps. And, with just a click, they can turn any SharePoint site into an agent too. This quarter alone, customers created over 1 million custom agents across SharePoint and Copilot Studio, up 130% quarter-over-quarter. When it comes to business applications, Dynamics 365 again took share as companies like Avaya, Brunswick, SoftCat, switched to Dynamics from legacy providers. Verizon, for example, chose Dynamics 365 Sales to improve the efficiency of its sellers. In healthcare, Dragon Copilot is off to a fast start. Last quarter alone, we helped document nearly 9.5 million physician-patient encounters at providers like City of Hope, Ottawa Hospital, Tufts Medicine and WellStar, up over 50% quarter-over-quarter. In manufacturing, we introduced Factory Operations and Safety Agents at Hannover Messe. And leading partners like Autodesk, PTC, and Siemens have all built their own industrial AI solutions on our stack. And, in retail, we have introduced agents to help customers like Bath & Body Works build more personalized shopping experiences and improve store operations. When it comes to Windows, Copilot+ PCs are faster and have better battery life than other devices in their category. We also continue to win new customers with |
5,119 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | PCs are faster and have better battery life than other devices in their category. We also continue to win new customers with best-in-class AI capabilities. We offer a growing number of AI apps from partners like Adobe, Canva, and Zoom. Just last week, we rolled out exclusive AI experiences like Recall, Click to Do, and Windows Search, to all Copilot+ PCs. And we continue to see increased commercial traction as we approach end-of-support for Windows 10. Windows 11 commercial deployments increased nearly 75% year-over-year. Now, on to security. Security is our top priority, and we have made significant progress against the engineering objectives we outlined a year and a half ago as part of our Secure Future Initiative. We are now applying these learnings to deliver new innovation across our platform. Last month, along with our partners, we introduced Security Copilot agents to help defenders autonomously handle high-volume security and IT tasks, informed by 84 trillion daily threat signals. We also added new capabilities to Defender, Entra, and Purview to help organizations secure and govern their AI deployments. All up, we now have 1.4 million security customers. Over 900,000 – including EY Global, Manpower Group, TriNet, Regions Bank – have 4 or more workloads, up 21% year-over-year. And, in identity, Entra now has more than 900 million monthly active users. Now, on to our consumer businesses, starting with LinkedIn. Over one billion professionals use LinkedIn to connect, learn, hire, and sell – and our membership continues to grow at double digits year-over-year. Time spent watching videos on the platform was up 36%, and comments were up 32% year-over-year. We are also seeing more members use AI to gain new skills and find jobs. The number of learners who have used AI-powered coaching increased over 2X quarter-over-quarter. And we remain the market leader in hiring, as customers like Equinix and Verizon use LinkedIn Hiring Assistant to find qualified candidates faster. When it comes to LinkedIn Premium, we saw |
5,120 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | and Verizon use LinkedIn Hiring Assistant to find qualified candidates faster. When it comes to LinkedIn Premium, we saw over 75% quarter-over-quarter subscriber growth to our Premium Pages offering for SMBs. And LinkedIn Marketing Solutions continues to be the best way to reach B2B decision makers, with two consecutive quarters of accelerated revenue growth. More broadly, when it comes to advertising, we are transforming how people search, browse, discover content, and use AI as a personal assistant. With Copilot Search in Bing, we are reimagining search results with overview pages curated by AI, and embedded conversational capabilities. With Copilot Vision in Edge, Copilot sees what you see and gives you real-time responses while you browse. With Copilot Discover, we are personalizing the MSN experience, based on user interactions and preferences. And with our updated Copilot app, we are focused on building daily engagement and successful sessions across a range of modalities, whether it is conversing, searching, shopping, or travel planning. All up, we again took share across Bing and Edge. And our total advertising revenue across our businesses has surpassed $20 billion over the last 12 months. Now, on to gaming. We continue to transform the business and focus on margin expansion, as we bring our games to over 500 million monthly active users across devices. We ended the quarter as the top publisher by pre-orders and pre-installs on both Xbox and the PlayStation Store. PC Game Pass revenue increased over 45% year-over-year. With Xbox Play Anywhere, players now can access more than 1,000 games they can play across console and PC. And just last week we brought cloud gaming to LG TVs. Cloud gaming set a new record, surpassing 150 million hours played for the first time this quarter. We are also integrating AI across Xbox. New Copilot for Gaming is a personalized gaming companion that provides in-game assistance and expert coaching. And our first of its kind Muse model can generate gameplay in real-time. |
5,121 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | that provides in-game assistance and expert coaching. And our first of its kind Muse model can generate gameplay in real-time. Finally, it is fantastic to see the success of Minecraft Movie which is the top grossing film of the year. In addition to monetizing our IP in new ways, we have seen a 75 percent-plus increase in weekly active users of the game year-over-year since the release. In closing, we are rapidly innovating to expand our opportunity across both consumer and commercial businesses. In just a few weeks, at our Build conference, we will share how we’re creating the most powerful AI platform for developers—and I encourage you to tune in. With that, let me turn it over to Amy. |
5,122 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thank you, Satya, and good afternoon everyone. This quarter, revenue was $70.1 billion, up 13% and 15% in constant currency. Gross margin dollars increased 11% and 13% in constant currency while operating income increased 16% and 19% in constant currency. And earnings per share was $3.46, an increase of 18% and 19% in constant currency. Results exceeded expectations driven by focused execution from our sales and partner teams. We continue to see strong demand for our cloud and AI offerings as they help customers drive productivity, increase efficiencies, and grow their businesses. And, again this quarter, revenue from our AI business was above expectations. Commercial bookings increased 18% and 17% in constant currency, significantly ahead of expectations again this quarter, driven by an Azure commitment from OpenAI. We also saw consistent execution across our core annuity sales motions and continued long-term commitments to our platform. Commercial remaining performance obligation increased to $315 billion, up 34% and 33% in constant currency. Roughly 40% will be recognized in revenue in the next 12 months, up 17% year over year. The remaining portion, recognized beyond the next 12 months, increased 47%. And this quarter, our annuity mix was 98%. FX was roughly in line with expectations on total company revenue, segment level revenue, and operating expense growth. FX decreased COGS growth by only 1 point, 1 point unfavorable to expectations. Microsoft Cloud revenue was $42.4 billion, ahead of expectations, and grew 20% and 22% in constant currency. Microsoft Cloud gross margin percentage was 69%, in line with expectations, and decreased 3 points year over year driven by the impact of scaling our AI infrastructure. Company gross margin percentage was also 69%, down 1 point year over year driven by scaling our AI infrastructure. Operating expenses increased 2% and 3% in constant currency, lower than expected due to our focus on cost efficiencies as well as investments that shifted to Q4. Operating |
5,123 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | currency, lower than expected due to our focus on cost efficiencies as well as investments that shifted to Q4. Operating margins increased 1 point year over year to 46%, better than expected as we continue to focus on building high-performing teams and increasing our agility by reducing layers with fewer managers. At a total company level, headcount at the end of March was 2% higher than a year ago and was down slightly compared to last quarter. Now to our segment results. Revenue from Productivity and Business Processes was $29.9 billion and grew 10% and 13% in constant currency, ahead of expectations driven by LinkedIn, Microsoft 365 commercial products, and Microsoft 365 consumer. M365 commercial cloud revenue increased 12% and 15% in constant currency, in line with expectations. ARPU growth was again driven by E5 and M365 Copilot. With M365 Copilot, we continue to see growth across customer segments and geos. Paid M365 commercial seats grew 7% year over year to over 430 million. While we continue to see installed base expansion across all customer segments, growth was primarily driven by our small and medium business and frontline worker offerings. M365 commercial products revenue increased 5% and 8% in constant currency, ahead of expectations due to higher-than-expected Office transactional purchasing. M365 consumer cloud revenue increased 10% and 12% in constant currency, ahead of expectations driven by higher-than-expected subscription growth following the January price increase. M365 consumer subscriptions grew 9% to 87.7 million. LinkedIn revenue increased 7% and 8% in constant currency. Results were ahead of expectations due to better-than-expected performance across all businesses. The Talent Solutions business continues to be impacted by weakness in the hiring market. Dynamics 365 revenue increased 16% and 18% in constant currency, in line with expectations with continued growth across all workloads. Segment gross margin dollars increased 10% and 13% in constant currency and gross margin percentage |
5,124 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | across all workloads. Segment gross margin dollars increased 10% and 13% in constant currency and gross margin percentage was relatively unchanged year over year even with the impact of scaling our AI infrastructure. Operating expenses increased 1% and 2% in constant currency and operating income increased 15% and 18% in constant currency. Next, the Intelligent Cloud segment. Revenue was $26.8 billion and grew 21% and 22% in constant currency, ahead of expectations driven by Azure. In Azure and other cloud services, revenue grew 33% and 35% in constant currency including 16 points from AI services. Focused execution drove non-AI services results where we saw accelerated growth in our enterprise customer segment as well as some improvement in our scale motions. And, in Azure AI services, we brought capacity online faster than expected. In our on-premises server business, revenue decreased 6% and 4% in constant currency, slightly below expectations driven by renewals with lower in-period revenue recognition from the mix of contracts. The year over year decline is reflective of the continued customer shift to cloud offerings. Enterprise and partner services revenue increased 5% and 6% in constant currency, slightly ahead of expectations due to better-than-expected performance in Enterprise Support Services. Segment gross margin dollars increased 13% and 14% in constant currency and gross margin percentage decreased 4 points year over year driven by scaling our AI infrastructure. Operating expenses increased 6% and 7% in constant currency and operating income grew 17% and 18% in constant currency. Now to More Personal Computing. Revenue was $13.4 billion and grew 6% and 7% in constant currency, ahead of expectations due to better-than-expected results across all businesses. Windows OEM and Devices revenue increased 3% year over year, ahead of expectations as tariff uncertainty through the quarter resulted in inventory levels that remained elevated. Search and news advertising revenue ex-TAC increased 21% and 23% in |
5,125 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | resulted in inventory levels that remained elevated. Search and news advertising revenue ex-TAC increased 21% and 23% in constant currency. Results were significantly ahead of expectations driven by usage from a third-party partnership, better-than-expected rate expansion, and volume growth across Edge and Bing. And in Gaming, revenue increased 5% and 6% in constant currency. Xbox content and services revenue increased 8% and 9% in constant currency, ahead of expectations driven by stronger-than-expected performance in third-party and first-party content. Segment gross margin dollars increased 9% and 11% in constant currency. Gross margin percentage increased 2 points year over year driven by strong execution on margin improvement in Search and Gaming. Operating expenses increased 1%. Operating income increased 21% and 23% in constant currency driven by continued prioritization of higher margin opportunities. Now back to total company results. Capital expenditures including finance leases were $21.4 billion, slightly lower than expected due to normal variability from the timing of delivery of data center leases. Cash paid for PP&E was $16.7 billion. Roughly half of our cloud and AI related spend was on long-lived assets that will support monetization over the next 15 years and beyond. The remaining cloud and AI spend was primarily for servers, both CPUs and GPUs, to serve customers based on demand signals including our customer contracted backlog of $315 billion. Cash flow from operations was $37 billion, up 16% driven by strong cloud billings and collections, partially offset by higher tax payments. And this quarter, free cash flow was $20.3 billion. Other income and expense was negative $623 million, more favorable than anticipated primarily due to net gains on derivatives and investments. Our losses on investments accounted for under the equity method were slightly higher than expected. Our effective tax rate was approximately 18%. And finally, we returned $9.7 billion to shareholders through dividends and |
5,126 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Our effective tax rate was approximately 18%. And finally, we returned $9.7 billion to shareholders through dividends and share repurchases, an increase of 15% year over year. Now, moving to our Q4 outlook, which unless specifically noted otherwise, is on a US dollar basis. First, thru April, demand signals across our commercial businesses as well as in LinkedIn, Gaming, and Search have remained consistent. Our outlook assumes those trends continue in Q4. If the environment changes, our results may be impacted. In our Windows OEM business, our outlook assumes the elevated inventory levels from Q3 will come down in Q4. We have widened our guidance range in our More Personal Computing segment to account for some of this variability. Next, FX. With the weakening of the US dollar in April, we now expect FX to increase total revenue growth by one point. Within the segments, we expect FX to increase revenue growth by one point in Productivity and Business Processes and less than one point in Intelligent Cloud and More Personal Computing. We expect FX to increase COGS and operating expense growth by less than one point. In commercial bookings, we expect solid growth on a significant prior year comparable and a growing expiry base. Bookings growth will be driven by strong execution across our core annuity sales motions and continued long-term commitments to our platform. As a reminder, larger longer-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 67%, down year over year primarily driven by the impact of scaling our AI infrastructure. And now, capital expenditures. We expect Q4 capital expenditures to increase on a sequential basis. H2 capex in total remains unchanged from our January H2 guidance. As a reminder, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases. Next to segment guidance. In Productivity |
5,127 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | from cloud infrastructure buildouts and the timing of delivery of finance leases. Next to segment guidance. In Productivity and Business Processes we expect revenue of $32.05 to $32.35 billion, or growth of 11% to 12% in constant currency. M365 commercial cloud revenue growth should be approximately 14% in constant currency, relatively stable compared to the prior quarter. We expect continued ARPU growth thru E5 and M365 Copilot and some seat growth moderation given the size of the installed base. M365 commercial products revenue growth should be in the mid-single digits. As a reminder, M365 commercial products includes both the Windows Commercial on-premises components of M365 suites and Office transactional purchasing, both of which can be variable due to in period revenue recognition dynamics. M365 consumer cloud revenue growth should be in the mid-teens driven by the January price increase. For LinkedIn, we expect revenue growth in the high single digits. And in Dynamics 365, we expect revenue growth to be in the mid to high teens with continued growth across all workloads. For Intelligent Cloud we expect revenue of $28.75 to $29.05 billion or growth of 20% to 22% in constant currency. Revenue will continue to be driven by Azure which, as a reminder, can have quarterly variability primarily from in-period revenue recognition depending on the mix of contracts. In Azure, we expect Q4 revenue growth to be between 34% and 35% in constant currency driven by strong demand for our portfolio of services. In our non-AI services, we expect focused execution to continue driving healthy growth. In our AI services, while we continue to bring datacenter capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June. In our on-premises server business, we again expect revenue to decline in the mid-single digits with the ongoing customer shift to cloud offerings. And in Enterprise and partner services, we expect revenue growth to be in the mid to high |
5,128 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | customer shift to cloud offerings. And in Enterprise and partner services, we expect revenue growth to be in the mid to high single digits driven by Enterprise Support Services. In More Personal Computing, we expect revenue to be $12.35 to $12.85 billion. Windows OEM and Devices revenue should decline in the mid to high single digits. We expect Windows OEM revenue to decline in the low to mid-single digits assuming OEM inventory levels come down thru the quarter as noted earlier, although the range of potential outcomes is wider than normal. Devices revenue should decline in the high teens. Search and news advertising ex-TAC revenue growth should be in the high teens, even on a strong prior year comparable. We expect to see continued growth in both volume and revenue per search with share gains across Edge and Bing. Overall Search and news advertising revenue growth should be in the mid-teens. And in Gaming, we expect revenue growth to be in the mid-single digits. We expect Xbox content and services revenue growth to be in the high single digits driven by first-party content. Now back to company guidance. We expect COGS of $23.6 to $23.8 billion or growth of 19% to 20% in constant currency and operating expense of $18 to $18.1 billion or growth of approximately 5% in constant currency. Therefore, even with ongoing AI investments as we scale, we continue to expect full-year FY25 operating margins to be up slightly year over year. Other income and expense is expected to be roughly negative $1.2 billion primarily driven by investments accounted for under the equity method. As a reminder, we do not recognize mark-to-market gains or losses on equity method investments. And lastly, we expect our Q4 effective tax rate to be approximately 19%. Now I’d like to share some closing thoughts as we look to the next fiscal year. We remain committed to investing against the strong demand signals we see for our services. So, as a reminder, our earlier comments on FY26 capital expenditures remain unchanged. We expect capex to |
5,129 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | see for our services. So, as a reminder, our earlier comments on FY26 capital expenditures remain unchanged. We expect capex to grow, it will grow at a lower rate than FY25 and will include a greater mix of short-lived assets which are more directly correlated to revenue than long-lived assets. These investments, along with focused execution that delivers near-term value to our customers, will ensure we continue to lead through the cloud and AI opportunity ahead. With that, let’s go to Q&A, Jonathan. |
5,130 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Thanks, Amy. We’ll now move over to Q&A. Out of respect for others on the call, we request that participants please only ask one question. Operator, can you please repeat your instructions?
Operator: [Operator instructions]
Keith Weiss, Morgan Stanley: Excellent. Thank you guys for taking the question, and congratulations on a fantastic quarter in what all of us are looking at as a difficult environment, a lot of uncertainty out there, so really impressive to put up the results that you guys did. One of the things that we heard a lot about this quarter in the media and press reports was changing data center commitments, maybe Microsoft walking away from some of those data center commitments. But it sounds like the AI demand is very strong. You’re talking about not being able to hit all that demand with supply. Can you talk to us about what’s going on with your datacenter strategy? Are there any shifts taking place? And maybe in particular, Satya, you could talk about some of the comments that you had made about the potential risk for oversupplies and GPUs out in the future. What exactly was that risk you were talking about? And are you incorporating that risk into your datacenter strategy? |
5,131 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yeah. First of all, thanks, Keith, for the questions. The reality is, we’ve always been making adjustments to build, lease, what pace we build, all through the last 10-15 years. It’s just that you all pay a lot more attention to what we do quarter over quarter nowadays. Having said that, the key thing for us is to have our builds and lease be positioned for what is the workload growth of the future. That’s what you have to go and seek to. There’s a demand part to it. There is the shape of the workload part to it, and there is a location part to it. You don’t want to be upside-down on having one big data center in one region, when you have a global demand footprint. You don’t want to be upside-down when the shape of demand changes, because, after all, with essentially pre-training plus test time compute, that’s a big change in terms of how you think about even what is training. Forget inferencing. Fundamentally, given all of that, and then every time there’s great Moore’s Law, but remember, this is a compounding S-curve, which is, there’s Moore’s Law, there’s system software, there’s model architecture changes, there’s the app server efficiency. Given all of that, we just want to make sure we’re building, accounting for the latest and greatest information we have on all of that. And that’s what you see reflected, and I feel very, very good about the pace. In fact, Amy just mentioned, we will be short power. And so, therefore, but it’s not power. It’s not a blanket statement. I need power in specific places so that we can either lease or build at the pace at which we want. And so, that’s the plan that we’re executing. Maybe, Amy, you can add to that. |
5,132 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Yeah, maybe just to add a little bit to Satya’s comments, just a reminder, these are very long lead time decisions. From land to build to buildouts can be lead times of five to seven years, two to three years. We’re constantly in a balancing position as we watch demand curves and many of things Satya watched. And the second part is just to maybe remind you, when Satya talks about being short power, he’s really talking about data center space. And so, we’ve continued through the second half to put things in place. In fact, we talked a little bit about pulling even some of that space to be ready earlier and being able to deliver that earlier to customers this quarter, which is really good work by the teams, as we continue to get more and more efficient at that process. And I look forward to being able to continue to do that in the future. I did talk about in my comments, we had hoped to be in balance by the end of Q4. We did see some increased demand, as you saw through the quarter. We are going to be a little short, still, a little tight as we exit the year, but are encouraged by that.
Keith Weiss: Excellent. Thank you, guys.
Jonathan Neilson: Thanks, Keith. Operator, next question, please.
Operator: [Operator instructions]
Brent Thill, Jefferies: Thanks. Satya, on your comment about accelerating demand for cloud migrations, I’m curious if you could dig in and extrapolate a little more what you’re seeing there. Thank you. |
5,133 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thanks, Brent. Yeah, I sort of think about three big things that are happening in the cloud, all at parallel, and there is also a relationship between them. One is, I’ll just say, the classic migration of whether it’s SQL, Windows Server. And so, that’s, again, got good steady state progress, because the reality is, I think everyone’s now, perhaps there’s another kick in the datacenter migrations, just because of the efficiency the cloud provides. That’s one part. The second piece is good data growth. You saw Postgres on Azure. I mean, forgetting SQL Server, Postgres on Azure is growing. Cosmos is growing, the analytic stuff I talked about with Fabric. It’s even the others, whether it is Databricks or even Snowflake on Azure are growing. We feel very good about Fabric growth and our data growth. Then the cloud-native growth, this is, again, before we even get to AI, some of the core compute consumption of cloud-native players is also very healthy. It was healthy throughout the quarter. We projected to go moving forward as well. Then the thing to notice is the ratio, and I think we’ve mentioned this multiple times before. If you look underneath even ChatGPT, in fact, that team does a fantastic job of thinking about not only their growth in terms of AI accelerators they need. They use Cosmos DB. They use Postgres. They use core compute and storage. And so, there’s even a ratio between any AI workload in terms of AI accelerator to others. Those are the four pockets, I would say, or four different trend lines, which all have a relationship with each other. And if I step back, and Amy and I talk a lot about this, this time around, there’s nothing certain for sure in the future, except for one thing, which is our largest business is our infrastructure business. And the good news here is the next big platform shift builds on that. It’s not a complete rebuild, having gone through some of these platform shift, where you have to come out on the other side with a full rebuild. If there is good news here, |
5,134 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | some of these platform shift, where you have to come out on the other side with a full rebuild. If there is good news here, it’s that we have a good business in Azure that continues to grow, and the new platform depends on that. We want to stay disciplined and execute super well on that. |
5,135 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Brent Thill: Thank you.
Jonathan Neilson: Thanks, Brent. Operator, next question, please.
Operator: [Operator instructions]
Mark Moerdler, Bernstein: Thank you very much for taking my question, and I will reiterate what my peers have said. Congratulations on the great quarter. Satya and Amy, Microsoft is a very different business than it was during the last recession. Incredible job you’ve done. If we get into a recession, and I hope we don’t, how do you think about the stability, the sustainability, revenue volatility of Microsoft today, if we were to get into recession? Would the business react early to recession or late? Would a recession have a more shallow impact on revenue? Any thoughts would be appreciated.
Satya Nadella: Maybe I’ll start and then Amy should add, Mark. The way, at least, I think we will approach it is, quite frankly, be very focused on how we help our customers if there is any turbulence in the macro, because one of the things that we feel we can do, just because of the efficiencies of the cloud, and the footprint we have and the differentiated layers of the stack, from the SaaS application side to the infrastructure side, I think if you buy into the argument that software is the most malleable resource we have to fight any type of inflationary pressure or any type of growth pressure where you need to do more with less, I think we can be super helpful in that. And so, if anything, we would probably have more of that mindset is how do we make sure we are helping our customers? And then, of course, we’ll look to share gains.
Jonathan Neilson: Thanks, Mark. Operator, next question, please.
Operator: [Operator instructions] |
5,136 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Thanks, Mark. Operator, next question, please.
Operator: [Operator instructions]
Karl Keirstead, UBS: Okay, thanks. A number of metrics to applaud, but I think the one that stands out to me is the 16 point growth rate lift to Azure from AI. Satya and Amy, I just wanted to ask if you could unpack that a little bit. Of course, you mentioned that you got a bit of a kicker from capacity coming online. But I’m a little bit more interested in where the demand came in above expectations, like what workload type. It’s hard for us to see that on the outside. Was it a surge in ChatGPT inference that landed in Azure? Was it an uptick in enterprise AI adoption? And Amy, do you think that 16 points could be higher in June? Thank you.
Amy Hood: Thanks, Karl, for the question. Just to provide some clarity, because I think your question implies something that we didn’t mean to imply on the call. First, the real outperformance in Azure this quarter was in our non-AI business. Then to talk about the AI business, really what was better was precisely what we said. We talked about this. We knew Q3 that we had really matched supply and demand pretty carefully, and so didn’t expect to do much better than we had guided to on the AI side. We’ve been quite consistent on that. The only real up side we saw on the AI side of the business was that we were able to deliver supply early to a number of customers. And being able to do that throughout the quarter creates quite a good benefit to us. But the majority of our outperformance versus where we had expected to be was on the non-AI piece of the business.
Jonathan Neilson: Thanks, Karl. Operator, next question, please.
Operator: [Operator instructions] |
5,137 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Thanks, Karl. Operator, next question, please.
Operator: [Operator instructions]
Kash Rangan, Goldman Sachs: Hi, thank you very much. One question for Amy. You’ve said in the past that you can attain better and better capital efficiency with the Cloud business, and probably Cloud and AI business. Where do you stand today, Amy? Maybe, Satya, you can opine as well, that you’ve said before that you can slow down your CapEx growth rate, while still accelerate Azure, which includes AI. Can we get a market to market on that? Thank you.
Amy Hood: Maybe I’ll start, Kash, and let Satya add on, because I really think when you go back and read some of Satya’s comments on how the S-curves build on themselves, that’s actually the levers that go in to the answer of the question that you’re asking. And so, the way, of course, you’ve seen that historically is right when we went through the prior cloud transitions, you see CapEx accelerate. You build out datacenter footprints. You slowly fill CPU capacity. And over time, you see software efficiencies and hardware efficiencies build on themselves. And you saw that process for us, for, goodness, now, quite a long time. And what Satya’s talking about is how quickly that’s happening on the AI side of the business, and you add to that model diversity. Think about the same levers, plus model efficiency, those compound. Now, the one thing that’s a little different this time is just the pace. And so, when you’re seeing that happen, pace in terms of efficiency time, but also pace in terms of the buildout, so it can mask some of the progress. But we are working hard across all of the teams, hardware, software, even the build teams, to get things in place as quickly as possible, dock to live times. All of that is improving, and all of that actually is benefiting us. And I’ll go ahead and say our margins on the AI side of the business are better than they were at this point, by far than when we went through the same transition in the server to cloud transition. |
5,138 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yeah, I mean, I think at a macro level, I think the way to think about this is, you can ask the question, what’s the difference between a hosting business and a hyperscale business? It’s software. That’s, I think, the gist of it. Yes, for sure, it’s a capital intensive business, but capital efficiency comes from that system wide software optimization. And that’s what makes the hyperscale business attractive, and that’s what we want to just keep executing super well on.
Kash Rangan: Super, Thanks so much.
Jonathan Neilson: Thanks, Kash. Operator, next question, please.
Operator: [Operator instructions]
Mark Murphy, JPMorgan: Thank you so much. Satya, you had commented recently that the DeepSeek moment is a real thing, and you had said that software efficiencies mean that the fleet will be aged for a longer time. Can you comment on how those advances are affecting the pace and volume of AI experimentation and activity in the marketplace? And Amy, could we start to consider the possibility that software enhancements might extend the useful life assumption that you’re using for GPUs, or is it a little premature to be thinking that way? |
5,139 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yeah. First of all, I think some of the work that actually, OpenAI first pioneered and did with all of the reasoning models, and of course, DeepSeek has added to it and done good work as well, and others as well, the idea that you can have test time compute plus pre-training, and then some of the great optimization at inference time that has all happened has proven out. I mean, if you look at it, I would say for every Moore’s Law change and movement, there’s probably a 10x improvement because of software. That’s what’s happening with these models. Some of it comes from model architecture. Some of that comes from data efficiency, compute efficiency, and what have you. That’s what we are riding, and we feel that, all up, when you have a commodity that is getting that better, then the question is, how do you build out a fleet that’s super balanced, so that then the workloads can be built and can, in fact, take advantage of that efficiency at the underlying infrastructure? I mean, it’s kind of like virtualization. What is the difference between servers and, again, client server with virtualization? It was efficiency. What is the difference between virtualization and cloud? It was efficiency. What is the difference between this generation of cloud and AI? It’s efficiency. The more you can kind of continue to think about software driving that efficiency is what drives demand, ultimately.
Amy Hood: And to your specific question, in terms of thinking about the depreciable life of an asset, we like to have a long history before we make any of those changes. We’re focused on getting every bit of useful life we can, of course, out of assets. But, to Satya’s point, that tends to be a software question more than a hardware one.
Mark Murphy: Thank you.
Jonathan Neilson: Thanks, Mark. Operator, next question, please.
Operator: [Operator instructions] |
5,140 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Mark Murphy: Thank you.
Jonathan Neilson: Thanks, Mark. Operator, next question, please.
Operator: [Operator instructions]
Kirk Materne, Evercore ISI: Yes, thanks very much, and congrats on a great quarter. Amy, you mentioned that the upside in Azure came from the non-AI services this time around. I was wondering if you could just talk a little bit more about that. And I guess as you look forward, maybe what’s different this go round versus what we saw a few years ago, when, obviously, things like optimization weighed on the growth a little bit? It sounds like the product portfolio is much broader right now, but just wondering if you could add some color on that front. Thank you.
Amy Hood: Sure, and thanks for the question, Kirk. We know the non-AI. I talked a little bit about this. In general, we saw better than expected performance across our segments, but we saw acceleration in our largest customers. We call that the enterprise segment in general. And then in what we talked about of our scale notions, where we had some challenges in Q2, things were a little better. And we still have some work to do in our scale notions. And we’re encouraged by our progress. We’re excited to stay focused on that as, of course, we work through the final quarter of our fiscal year. By geo, the performance was pretty consistent. Satya actually highlighted some of the workloads that came in a little better than we thought. Obviously, just some good, consistent work on migration, good execution by the sales and partner teams, the data workloads he went through. And so, in general, Kirk, I wouldn’t say it’s anything beyond that. I do think it was improved execution. And I was happy to see it, but there’s still some work to do on our scale motions in particular.
Kirk Materne: Thank you.
Jonathan Neilson: Thanks, Kirk. Operator, we have time for one last question.
Operator: [Operator instructions] |
5,141 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Thanks, Kirk. Operator, we have time for one last question.
Operator: [Operator instructions]
Alex Zukin, Wolfe Research: Hey guys, thanks for squeezing me in, and again, just amazing. Congratulations on those Azure numbers, which I think are, quite honestly, just inspiring. Maybe, Amy, to the point that you’re making that the surprise factor was on the non-AI side of the house, and it sounds like there’s confidence in that continuing beyond. How much of that are you starting to see the pull in of the non-AI driven by the AI portion of Azure? And on the AI portion, specifically, as test time compute really just blows out kind of prior conceptions of scaling law challenges, how much does that change, potentially, the curve of the AI Azure growth as you go forward here over the next few quarters? |
5,142 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Alex. Let me, first of all, say I think we’ve talked about this quite a bit. It’s always a good chance to get to iterate this. It’s getting harder and harder to separate what an AI workload is from a non-AI workload. And we’ve talked about it this way, I think, in most instances, to make sure people understood that when we were accelerating all of our CapEx spend over the past two and a half or three years now, that people had confidence that we were turning that into revenue and product in a way that was transparent and that everyone could understand, really the goals that we had set for ourselves and for our partners and customers in terms of building product that turned to revenue. But if you take a step back from that, it’s that these workloads are being built, GPUs, CPUs, storage, network, all the same things. And so, I think really what we’re talking about is really how Satya talked about, in one of the earlier questions, we’re seeing digital natives. Digital natives build workloads. They do AI work. They do non-AI work. Do they tend to do that work in the same cloud? Lots of times. Sometimes it’s all in the same place, not all the time. But that relationship gets stronger and stronger as people pivot to more of AI heavy workloads. And so, I think you’re starting to see some of that relationship. I think we’ll continue to see that as AI workloads continue to get built and experimented with, and proof of concepts get expanded. And so, I think I mostly focus on the fact that together, we saw good performance in Q3 on Azure, Azure inclusive of both components, in terms of our execution, in terms of the field and partner teams, and backlog and conversion, and interesting workloads, and adding customer value, and solving real problems, and adding real value. And I think that’s probably, Alex, how I would approach that number, more than trying to separate it in the way that even we have talked about it, but for very different reasons. |
5,143 | MSFT | 3 | 2,025 | 2025-04-30 17:30:00 | Microsoft Corporation | 21,835 | Jonathan Neilson: Thanks, Alex. That wraps up the Q&A portion of today’s earnings call. Thank you for joining us today, and we look forward to speaking with you all soon.
Satya Nadella: Thank you.
Amy Hood: Thank you.
Operator: This concludes today's conference. You may disconnect your lines at this time, and enjoy the rest of your day. |
5,144 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Operator: Greetings and welcome to the Microsoft Fiscal Year 2025 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Iversen, Vice President of Investor Relations. Please go ahead. |
5,145 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today's call. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's second quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we'll be making forward-looking statements, which are predictions, |
5,146 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | the Microsoft Investor Relations website. During this call, we'll be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya. |
5,147 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Brett. This quarter we saw continued strength in Microsoft Cloud, which surpassed $40 billion in revenue for the first time, up 21% year-over-year. Enterprises are beginning to move from proof-of-concepts to enterprise-wide deployments to unlock the full ROI of AI. And our AI business has now surpassed an annual revenue run rate of $13 billion up 175% year-over-year. Before I get into the details of the quarter, I want to comment on the core thesis behind our approach to how we manage our fleet and how we allocate our capital to compute. AI scaling laws are continuing to compound across both pre-training and inference time compute. We ourselves have been seeing significant efficiency gains in both training and inference for years now. On inference, we have typically seen more than 2x price performance gain for every hardware generation and more than 10x for every model generation due to software optimizations. And as AI becomes more efficient and accessible, we will see exponentially more demand. Therefore, much as we have done with the Commercial Cloud, we are focused on continuously scaling our fleet globally and maintaining the right balance across training and inference as well as geo distribution. From now on it's a more continuous cycle governed by both revenue growth and capability growth, thanks to the compounding effects of software driven AI scaling laws and Moore's Law. With that, I will walk through the progress we are making across every layer of the tech stack. Azure is the infrastructure layer for AI. We continue to expand our data center capacity in line with both near-term and long-term demand signals. We have more than doubled our overall data center capacity in the last three years and we have added more capacity last year than any other year in our history. Our data centers, networks, racks and silicon are all coming together as a complete system to drive new efficiencies to power both the cloud workloads of today and the next generation AI workloads. We continue to |
5,148 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | to drive new efficiencies to power both the cloud workloads of today and the next generation AI workloads. We continue to take advantage of Moore's Law and refresh our fleet as evidenced by our support of the latest from AMD, Intel, NVIDIA as well as our first-party silicon innovation from Maia, Cobalt, Boost and HSM. When it comes to cloud migrations, we continue to see customers like UBS move workloads to Azure. UBS alone migrated mainframe workloads encompassing nearly 400 billion records and 2 petabytes of data. And we remain the cloud of choice for customers' mission-critical Oracle, SAP and VMware apps. At the data layer, we are seeing Microsoft Fabric breakout. We now have over 19,000 paid customers from Hitachi to Johnson Controls to Schaeffler. Fabric is now the fastest growing analytics product in our history. Power BI is also deeply integrated with Fabric with over 30 million monthly active users, up 40% since last year. Beyond Fabric, we are seeing new AI-driven data patterns emerge. If you look underneath ChatGPT or Copilot or Enterprise AI apps, you see the growth of raw storage, database services and app platform services as these workloads scale. The number of Azure OpenAI apps running on Azure databases and Azure app services more than doubled year-over-year driving significant growth and adoption across SQL Hyperscale and Cosmos DB. Now on to AI platform and tools, as we shared last week we are thrilled OpenAI has made a new large Azure commitment. Through our strategic partnership we continue to benefit mutually from each other's growth and with OpenAI's APIs exclusively running on Azure customers can count on us to get access to the world's leading models and OpenAI has a lot more coming soon, so stay tuned. Azure AI Foundry features best-in-class tooling, run times to build agents, multi-agent apps, AI ops, API access to thousands of models. Two months in, we already have more than 200,000 monthly active users and we are well positioned with our support of both OpenAI's leading models and |
5,149 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | have more than 200,000 monthly active users and we are well positioned with our support of both OpenAI's leading models and the best selection of Open Source models and SLMs. DeepSeek's R1 launched today via the model catalog on Foundry and GitHub with automated red teaming, content safety integration and security scanning. Our Phi family of SLMs has now been downloaded over 20 million times and we also have more than 30 models from partners like Bayer, Paige.AI, Rockwell Automation, Siemens to address industry specific use cases. With AI, how we build, deploy and maintain code is fundamentally changing. And GitHub Copilot is increasingly the tool of choice for both digital natives like ASOS and Spotify as well as world's largest enterprises like HP, HSBC and KPMG. We've been delighted by the early response to GitHub Copilot and VS Code with more than a million sign ups in just the first week post launch. All up GitHub now is home to 150 million developers up 50% over the past two years. Now on to the future of work. Microsoft 365 Copilot is the UI for AI. It helps supercharge employee productivity and provides access to a swarm of intelligent agents to streamline employee workflow. We are seeing accelerated customer adoption across all deal sizes as we win new Microsoft 365 Copilot customers and see the majority of existing enterprise customers come back to purchase more seats. When you look at customers who purchased Copilot during the first quarter of availability, they have expanded their seats collectively by more than 10x over the past 18 months. To share just one example, Novartis has added thousands of seats each quarter over the past year and now have 40,000 seats. Barclays, Carrier Group, Pearson and University of Miami all purchased 10,000 or more seats this quarter. And overall the number of people who use Copilot daily again more than doubled quarter-over-quarter. Employees are also engaging with Copilot more than ever. Usage intensity increased more than 60% quarter-over-quarter and we are |
5,150 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | are also engaging with Copilot more than ever. Usage intensity increased more than 60% quarter-over-quarter and we are expanding our TAM with Copilot Chat which was announced earlier this month. Copilot Chat along with Copilot Studio is now available to every employee to start using agents right in the flow of work. With Copilot Studio, we are making it as simple to build an agent as it is to create an Excel spreadsheet. More than 160,000 organizations have already used Copilot Studio and they collectively created more than 400,000 custom agents in the last three months alone up over 2x quarter-over-quarter. We've also introduced our own first-party agents to facilitate meetings, manage projects, resolve common HR and IT queries and access SharePoint data. And we also continue to see partners like Adobe, SAP, ServiceNow and Workday build their third-party agents and integrate with Copilot. What is driving Copilot as the UI for AI as well as our momentum with agents is our rich data cloud which is the world's largest source of organizational knowledge. Billions of emails, documents and chats, hundreds of millions of teams meetings and millions of SharePoint sites are added each day. This is the Enterprise Knowledge Cloud. It is growing fast up over 25% year-over-year. More broadly what we are seeing is Copilot plus agents disrupting business applications and we are leaning into this. With Dynamics 365, we took share as organizations like Ecolab, Lenovo, RTX, Total Energies, and Vizient switched to our AI powered apps from legacy providers. In Healthcare, DAX Copilot surpassed 2 million monthly physician patient encounters up 54% quarter-over-quarter. It is being used by top providers like Mass General Brigham, Michigan Medicine, Vanderbilt University Medical Center to increase productivity of their physicians. When it comes to Windows, we are seeing momentum build as we approach end of support for Windows 10. Customers are choosing the latest Windows 11 devices for their enhanced security and advanced AI |
5,151 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | end of support for Windows 10. Customers are choosing the latest Windows 11 devices for their enhanced security and advanced AI capabilities. 15% of premium priced laptops in the US this holiday were Copilot+ PCs and we expect the majority of the PCs sold in the next several years to be Copilot+ PCs. We also see more and more developments from Adobe and CapCut to WhatsApp build apps that leverage built-in NPUs. And they will soon be able to run DeepSeek's R1 distilled models locally on Copilot+ PCs as well as the vast ecosystem of GPUs available on Windows. And beyond Copilot+ PCs the most powerful AI workstation for local development is a Windows PC running WSL 2 powered by NVIDIA RTX GPUs. Now on to Security. We continue to make progress with our Secure Future initiative and we are applying what we have learned introducing over 80 new product capabilities over the past year. With Security Copilot organizations across private and public sector like City of Johannesburg, Eastman, Intesa, National Australia Bank, NTT can resolve incidents 30% faster. Data governance is increasingly critical and customers now use Microsoft Purview to audit over 2 billion Copilot interactions for safe and compliant use. Now on to our consumer businesses starting with LinkedIn. More professionals than ever are engaging in high value conversations on LinkedIn with comments up 37% year-over-year. Short form video continues to grow on the platform with video creation all up growing at twice the rate of other post formats. We're also innovating with agents to help recruiters and small businesses find qualified candidates faster and our hiring business again took share. In subscriptions, LinkedIn premiums surpassed $2 billion in annual revenue for the first time this quarter. Subscriber growth has increased nearly 50% over the past two years and nearly 40% of subscribers have used our AI features to improve their profiles. And LinkedIn marketing solution remains the leader in B2B advertising. Now on to Search Advertising and News. We |
5,152 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | profiles. And LinkedIn marketing solution remains the leader in B2B advertising. Now on to Search Advertising and News. We once again took share across Bing and Edge. Edge surpassed 30% market share in the US on Windows and has taken share for 15 consecutive quarters. The investments we have made in improving our ad rates are paying off and advertisers increasingly see our network as an essential platform to optimize ROI. And our Copilot consumer app is seeing increased engagement and retention with its improved speed, unique personality, first of its kind features like Copilot Vision. Just today we made Think Deeper powered by o1, free for all Copilot users globally. Now on to gaming, we are focused on improving the profitability of the business in order to position it for long-term growth driven by higher margin content and platform services and we are delivering on this plan. Black Ops 6 was top selling game on Xbox and PlayStation this quarter and saw more players in its launch quarter than any other paid release in the franchise history. And we saw rave reviews of Indiana Jones and the Great Circle which has already been played by more than 4 million people. We also continue to see strong momentum for Xbox Cloud Gaming with a record 140 million hours streamed this quarter. All-up Game Pass set a new quarterly record for revenue and grew its PC subscriber base by over 30% as we focus on driving fully paid subscribers across endpoints. In closing, we continue to innovate across our tech stack to help our customers in this AI era and I'm energized by the many opportunities ahead. With that, let me turn it over to Amy. |
5,153 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thank you, Satya and good afternoon everyone. This quarter revenue was $69.6 billion up 12%. Gross margin dollars increased 13% and 12% in constant currency, while operating income increased 17% and 16% in constant currency. Earnings per share was $3.23 an increase of 10%. We delivered another quarter of double-digit top and bottom line growth. Results were driven by strong demand for our cloud and AI offerings, while we also improved our operating leverage with higher than expected operating income growth. As you heard from Satya, our AI business annual revenue run rate surpassed $13 billion and was above expectations. Commercial bookings increased 67% and 75% in constant currency and were significantly ahead of expectations driven by Azure commitments from OpenAI. Execution was strong across our core annuity sales motions with growth in the number of $100 million plus contracts for both Azure and Microsoft 365. Commercial remaining performance obligation increased to $298 billion, up 34% and 36% in constant currency. Roughly 40% will be recognized in revenue in the next 12 months, up 21% year-over-year. The remaining portion recognized beyond the next 12 months increased 45%. And this quarter, our annuity mix was 97%. FX did not have a significant impact on our results and was roughly in line with expectations on total company revenue, More Personal Computing revenue, total company COGS, and operating expense. FX decreased revenue more than expected in our commercial segments. Microsoft Cloud revenue was $40.9 billion and grew 21%. Microsoft Cloud gross margin percentage was 70%, in line with expectations and decreased two points year-over-year driven by scaling our AI infrastructure. Company gross margin percentage increased slightly year-over-year to 69% primarily driven by sales mix shift to higher margin businesses as well as improvement in Gaming and Search, partially offset by the impact of scaling our AI infrastructure. Operating expenses increased 5%, lower than expected, and operating |
5,154 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | offset by the impact of scaling our AI infrastructure. Operating expenses increased 5%, lower than expected, and operating margins increased two points year-over-year to 45%. The better than expected margin expansion was driven by delivering efficiencies across our businesses as we invest to scale AI infrastructure and build AI applications. At a total company level, headcount at the end of December was 2% higher than a year ago and was relatively unchanged from last quarter. Now to our segment results. Revenue from Productivity and Business Processes was $29.4 billion and grew 14% and 13% in constant currency even with the unfavorable FX impact noted earlier. Results were ahead of expectations driven by Microsoft 365 Commercial. Microsoft 365 Commercial Cloud revenue increased 16% and 15% in constant currency, slightly ahead of expectations due to better than expected performance in E5 and Microsoft 365 Copilot. With M365 Copilot, we continue to see growth in adoption, expansion, and usage. ARPU growth was again driven by E5 and M365 Copilot. Paid M365 Commercial seats grew 7% year-over-year with installed base expansion across all customer segments, though primarily in our small and medium business and frontline worker offerings. M365 commercial products revenue increased 13%, significantly ahead of expectations driven by higher than expected transactional purchasing with the launch of Office 2024 as well as the Windows Commercial on-premises components from the better than expected performance of M365 suites noted earlier. M365 Consumer Cloud revenue increased 8%, slightly ahead of expectations. We saw continued momentum in M365 consumer subscriptions which grew 10% to 86.3 million with mix shift to M365 Basic. LinkedIn revenue increased 9% with continued growth across all lines of business. In our Talent Solutions business, results were slightly below expectations driven by continued weakness in the hiring market in key verticals. Dynamics 365 revenue increased 19% and 18% in constant currency, slightly |
5,155 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | weakness in the hiring market in key verticals. Dynamics 365 revenue increased 19% and 18% in constant currency, slightly ahead of expectations with growth across all workloads. Segment gross margin dollars increased 13% and 12% in constant currency and gross margin percentage decreased slightly year-over-year driven by scaling our AI infrastructure. Operating expenses increased 6% and operating income increased 16% and 15% in constant currency. Next the Intelligent Cloud segment. Revenue was $25.5 billion and grew 19% with more unfavorable FX impact than expected. Excluding the unfavorable FX impact, results in Azure non-AI services, on-prem server, and enterprise and partner services were slightly lower than expected, partially offset by better than expected results in Azure AI services. Azure and other cloud services revenue grew 31%. Azure growth included 13 points from AI services, which grew 157% year-over-year and was ahead of expectations even as demand continued to be higher than our available capacity. Growth in our non-AI services was slightly lower than expected due to go-to-market execution challenges, particularly with our customers that we primarily reach through our scale motions, as we balance driving near-term non-AI consumption with AI growth. In our on-premises server business, revenue decreased 3%, slightly below expectations driven by slower than expected purchasing around Windows Server 2025 launch. Enterprise and Partner Services revenue decreased 1%, below expectations with lower than expected performance across Enterprise Support Services and Industry Solutions. Segment gross margin dollars increased 12% and 13% in constant currency and gross margin percentage decreased four points year-over-year driven by scaling our AI infrastructure. Operating expenses increased 10% and operating income grew 14%. Now to More Personal Computing. Revenue was $14.7 billion, relatively unchanged year-over-year with better than expected results driven primarily by Windows OEM pre-builds, usage from a |
5,156 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | relatively unchanged year-over-year with better than expected results driven primarily by Windows OEM pre-builds, usage from a third-party partnership in Search, as well as Call of Duty launch performance in Gaming. Windows OEM and Devices revenue increased 4% year-over-year, ahead of expectations, driven by commercial inventory builds in advance of Windows 10 end of support as well as uncertainty around tariffs. Search and News advertising revenue ex-TAC increased 21% and 20% in constant currency, ahead of expectations driven by usage from a third-party partnership. Growth continues to be driven by rate expansion and healthy volume growth in both Edge and Bing. And in Gaming, revenue decreased 7% and 8% in constant currency as content and services growth continued to be offset by hardware declines. Xbox content and services revenue increased 2%, ahead of expectations driven by stronger than expected performance in Blizzard and Activision content, including Call of Duty. Segment gross margin dollars increased 13% and 12% in constant currency. Gross margin percentage increased six points year-over-year driven by sales mix shift to higher margin businesses as well as strong execution on margin improvement in Gaming and Search. Operating expenses decreased 1%. Operating income increased 32% and 30% in constant currency driven by continued prioritization of higher margin opportunities. Now back to total company results. Capital expenditures including finance leases were $22.6 billion, in line with expectations, and cash paid for PP&E was $15.8 billion. More than half of our cloud and AI related spend was on long-lived assets that will support monetization over the next 15 years and beyond. The remaining cloud and AI spend was primarily for servers, both CPUs and GPUs, to serve customers based on demand signals including our customer contracted backlog. Cash flow from operations was $22.3 billion, up 18% driven by strong cloud billings and collections, partially offset by higher supplier, employee and tax payments. |
5,157 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | up 18% driven by strong cloud billings and collections, partially offset by higher supplier, employee and tax payments. Free cash flow was $6.5 billion, down 29% year-over-year, reflecting the capital expenditures noted earlier. This quarter, other income and expense was negative $2.3 billion, lower than our October guidance due to the impairment charge from our Cruise investment. Our effective tax rate came in slightly lower than anticipated at 18%. And finally, we returned $9.7 billion to shareholders through dividends and share repurchases. Now, moving to our Q3 outlook, which unless specifically noted otherwise, is on a US dollar basis. First, FX. With the strengthening of the US dollar since October, we now expect FX to decrease total revenue growth by two points. Within the segments, we expect FX to decrease revenue growth by two points in Productivity and Business Processes and Intelligent Cloud and roughly one point in More Personal Computing. When compared to our October guidance assumptions on Q3 FX impact, this is a decrease to total revenue of roughly $1 billion. We expect FX to decrease COGS growth by approximately two points and operating expense growth by approximately one point. Our outlook has many of the trends we saw in Q2 continue through Q3. Demand for our differentiated cloud and AI offerings across the Microsoft Cloud should drive another quarter of strong growth. In Commercial Bookings, with a relatively flat expiry base and a strong prior year comparable in terms of large Azure contracts, we expect growth to be roughly flat year-over-year. We expect consistent execution across our core annuity sales motions and continued long-term commitments to our platform. As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 69%, down year-over-year driven by the impact of scaling our AI infrastructure. Next to segment guidance. In |
5,158 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | should be roughly 69%, down year-over-year driven by the impact of scaling our AI infrastructure. Next to segment guidance. In Productivity and Business Processes we expect revenue to grow between 11% and 12% in constant currency or $29.4 billion to $29.7 billion. Microsoft 365 Commercial Cloud revenue growth should be between 14% and 15% in constant currency, relatively stable compared to our better than expected Q2 results. We expect continued ARPU growth through E5 and M365 Copilot and we again expect some seat growth moderation given the size of the installed base. For M365 Commercial products, we expect revenue to be relatively unchanged year-over-year. As a reminder, M365 Commercial products include Windows Commercial on-premises components of M365 suites, so our quarterly revenue growth can have variability primarily from in-period revenue recognition depending on the mix of contracts. M365 Consumer Cloud revenue growth should be in the mid to high-single-digits driven by M365 subscriptions. For LinkedIn, we expect revenue growth in the low to mid-single-digits. Although we expect growth across all businesses, the Q2 trends in Talent Solutions should continue in Q3 as a headwind to growth. And in Dynamics 365, we expect revenue growth to be in the mid-teens driven by continued growth across all workloads. For Intelligent Cloud we expect revenue to grow between 19% and 20% in constant currency or $25.9 billion to $26.2 billion. Revenue will continue to be driven by Azure which, as a reminder, can have quarterly variability primarily from in-period revenue recognition depending on the mix of contracts. In Azure, we expect Q3 revenue growth to be between 31% and 32% in constant currency driven by strong demand for our portfolio of services. As we shared in October, the contribution from our AI services will grow from increased AI capacity coming online. In non-AI services healthy growth continues, although we expect ongoing impact through H2 as we work to address the execution challenges noted earlier. And |
5,159 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | continues, although we expect ongoing impact through H2 as we work to address the execution challenges noted earlier. And while we expect to be AI capacity constrained in Q3, by the end of FY25 we should be roughly in line with near-term demand given our significant capital investments. In our on-premises server business, we expect revenue to decline in the mid-single-digits driven by a decrease in transactional purchasing. And in Enterprise and Partner services, we expect revenue growth to be in the low to mid-single-digits. In More Personal Computing, we expect revenue to be $12.4 billion to $12.8 billion with continued prioritization of higher margin opportunities. Windows OEM and Devices revenue should decline in the low to mid-single-digits. We expect revenue from Windows OEM to be relatively flat year-over-year as our outlook assumes inventory levels will normalize. Actual results may differ based on current tariff uncertainties. Devices revenue will decline. Search and News advertising ex-TAC revenue growth should be in the mid-teens from continued growth in both volume and revenue per search with share gains across Edge and Bing. Growth is expected to moderate from last quarter primarily due to additional FX impact and as the third-party partnership usage noted earlier returns to more normal levels. Search ex-TAC growth will be higher than overall Search and News advertising revenue growth, which we expect to be in the mid to high-single-digits. And in Gaming, we expect revenue growth to be in the low-single-digits. We expect Xbox content and services revenue growth to be in the low to mid-single-digits driven by first-party content as well as Xbox Game Pass. Hardware revenue will decline year-over-year. Now back to company guidance. We expect COGS to grow between 19% and 20% in constant currency or to be between $21.65 billion to $21.85 billion and operating expense to grow between 5% and 6% in constant currency or to be between $16.4 billion and $16.5 billion. Other income and expense is expected to be |
5,160 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | 5% and 6% in constant currency or to be between $16.4 billion and $16.5 billion. Other income and expense is expected to be roughly negative $1 billion primarily driven by investments accounted for under the equity method. As a reminder, we do not recognize mark-to-market gains or losses on equity method investments. And lastly, we expect our Q3 effective tax rate to be approximately 18%. Now some additional thoughts on the rest of the fiscal year and beyond. First, FX. With the strengthening of the US dollar since October, we now expect FX to decrease Q4 revenue and COGS growth by more than one point and operating expense growth by roughly one point. Next, capital expenditures. We expect quarterly spend in Q3 and Q4 to remain at similar levels as our Q2 spend. In FY26, we expect to continue investing against strong demand signals including customer contracted backlog we need to deliver against across the entirety of our Microsoft Cloud. However, the growth rate will be lower than FY25 and the mix of spend will begin to shift back to short-lived assets which are more correlated to revenue growth. As a reminder, our long-lived infrastructure investments are fungible, enabling us to remain agile as we meet customer demand globally across our Microsoft Cloud including AI workloads. As always, there can be quarterly spend variability from cloud infrastructure build-outs and the timing of delivery of finance leases. For the full fiscal year, we continue to expect double-digit revenue and operating income growth as we focus on delivering efficiencies across both COGS and operating expense. And given the operating leverage that we've delivered throughout the year, inclusive of efficiency gains as we scale our AI infrastructure and utilize our own AI solutions, we now expect FY25 operating margins to be up slightly year-over-year. And finally, our FY25 full year effective tax rate should be between 18% and 19%. In closing, we are committed to delivering real world AI solutions that help customers grow and improve their |
5,161 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | 18% and 19%. In closing, we are committed to delivering real world AI solutions that help customers grow and improve their results. We are confident in our leadership position as we grow with our customers. Before turning to Q&A, I have one special thank you. Brett Iversen is moving to a new role here as the Head of our Americas sales finance team. On behalf of the company, thank you for your tremendous impact leading Investor Relations for the past four years and for the partnership with both Satya and me. And I'd like to welcome Jonathan Neilson, the former Head of Finance for our Security products, who is returning to Investor Relations to lead the team. With that, let's go to Q&A, Brett. |
5,162 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Thanks, Amy. We'll now move over to Q&A. Out of respect for others on the call, we request that participants please only ask one question. Operator, can you please repeat your instructions?
Operator: Thank you. [Operator Instructions] And our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Keith Weiss: Hi. Thank you guys for taking the question. And echoing Amy's comments, Brett, congratulations on the new role. It's been a pleasure working with you and best of luck in that new role. Looking at the quarter, another really solid quarter when it comes to commercial bookings. But again, we were a little disappointed on Azure coming in at the bottom end of the guidance range. Amy, I was hoping you could dig into perhaps what some of those execution issues were, what the resolution to those issues were. And do we still feel comfortable in the acceleration into the back half of the year that you were talking about after the June quarter and after last quarter? Thank you very much. |
5,163 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Keith. Let me spend a little time on that about what we saw in Q2 and give you some additional background on the near-term execution issues that we're talking about. First, let me be very specific. They are in the non-AI ACR component. Our Azure AI results were better than we thought due to very good work by the operating teams pulling in some delivery dates even by weeks. When your capacity constrained weeks matter, and it was good execution by the team, and you see that in the revenue results. On the non-AI side, really, the challenges were in what we call the scale motion. So think about primarily these are customers we reach through partners and through more indirect methods of selling. And really, the art form there is as these customers, which we reach in this way, are trying to balance how do you do an AI workload with continuing some of the work they've done on migrations and other fundamentals, we then took our sales motions in the summer and really change to try to balance those two. As you do that, you learn with your customers and with your partners on sort of getting that balance right between where to put our investments, where to put the marketing dollars and importantly, where to put people in terms of coverage and being able to help customers make those transitions. And I think we are going to make some adjustments to make sure we are in balance because when you make those changes in the summer, by the time it works its way through the system, you can see the impacts on whether you have that balance right. And so the teams are working through that. They're already making adjustments. And I expect, while, we will see some impact through H2 just because when you work through the scale motion, it can take some time for that to adjust. I feel good that the teams understand and are working through that. So hopefully that's just helpful on that. Then we talked a little bit about Q3. And so we've talked about 31% to 32% after publishing a 31% this quarter. Our AI results that we had |
5,164 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | a little bit about Q3. And so we've talked about 31% to 32% after publishing a 31% this quarter. Our AI results that we had felt good about and talked about our ability to land that revenue is the same. So again, in Q3, we are working from a pretty constrained capacity place. And that's no different than it was our expectation to be in that position last October when I talked to you all. And when I talk about being at a capacity constraint, it takes two things. You have to have space, which I generally call long-lived assets, right, that's the infrastructure and the land and then you have to have kits. We're continuing and you've seen that's why our spend has pivoted this way to be in the long-lived investment. We have been short, power and space. And so as you see those investments land that we've made over the past three years, we get closer to that balance by the end of this year. And so the confidence on the AI side continues to be there in terms of being able to sell, utilize and be, I think, encouraged by the signals. What we're seeing is waiting to see just how the non-AI ACR works through the scale motions in H2. But in general, the only thing that's changed is really that scale motion from my seat, Keith. Hope that's helpful. Satya? |
5,165 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yes. I think, Amy, just one thing I'd add, Keith, to your question is, as Amy said, the AI growth rate is actually better than what we expected, and we work through some of the supply stuff and more importantly, some of the workloads are scaling well. And when you look underneath any of these AI workloads, the other thing that is good is the ratio even what we would call just regular storage, data services, app services. So underneath a ChatGPT or a Copilot or even the emerging AI workloads in the enterprise. So that's all good. The enterprise workloads, whether it's SAP or whether it's VMware migrations, what have you, that's also in good shape. And it's just the scale place where Amy talked about this nuance, right, how do you really tweak the incentives, go-to-market at a time of platform shifts, you kind of want to make sure you lean into even the new design wins, and you just don't keep doing the stuff that you did in the previous generation. And that's the art form Amy was referencing to make sure you get the right balance. But let me put it this way. You would rather win the new than just protect the past. And that's sort of another thing that we definitely will lean into always.
Keith Weiss: Excellent.
Brett Iversen: Thanks, Keith. Operator, next question please.
Operator: The next question comes from the line of Mark Moerdler with Bernstein Research. Please proceed.
Mark Moerdler: Thank you very much for taking my question. Can you give more color on what drove the far larger than expected Microsoft AI revenue. We talked a bit about the Azure AI component of it. But can you give more color on that? And our estimates are that the Copilot was much bigger than we had expected and growing much faster. Any more details on the breakdown of what that Microsoft AI would be great? Thanks. |
5,166 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Mark, for the question. Yes, that was, as we talked about better than expected. A couple of pieces to that, which you've correctly identified. Number one is the Azure component we just talked about. And the second piece, you're right, Microsoft Copilot was better. And what was important about that it was -- we saw strength both in seats, both new seats and expansion seats, as Satya talked about, and usage, which doesn't directly impact revenue, but of course, indirectly does as people get more and more value on it. And also price per seat was actually quite good. We still have a good signal for value. So those are the biggest pieces, Mark, of that sort of outperformance in terms of our expectations.
Mark Moerdler: Thank you.
Brett Iversen: Thanks, Mark. Operator, next question please.
Operator: The next question comes from the line of Brent Thill with Jefferies. Please proceed.
Brent Thill: Thanks. Satya, you mentioned DeepSeek a couple of times in your prepared remarks. I think everyone would love your thoughts on what you're seeing there. And are we seeing AI scale now at lower cost? Are we reaching a mark where you can see that or do we still have some time to go? Thanks for your thoughts on this. |
5,167 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yes. Thanks, Brent. So, yes, in my remarks, I talked about how in some sense, what's happening with AI is no different than what was happening with the regular compute cycle. It's always about bending the curve and then putting more points up the curve. So there's Moore's Law that's working in hyperdrive. Then on top of that, there is the AI scaling laws, both the pre-training and the inference time compute that compound and that's all software. You should think of what I said in my remarks, which we have observed for a while, which is 10x on improvements per cycle just because of all the software optimizations on inference. And so that's what you see. And then to that, I think DeepSeek has had some real innovations. And that is some of the things that even OpenAI found in o1. And so we are going to, obviously, now that all gets commoditized, and it's going to get broadly used. And the big beneficiaries of any software cycle like that is the customers, right. Because at the end of the day, if you think about it, right, what was the big lesson learned from client server to cloud, more people bought servers except it was called cloud. And so when token prices fall, infants computing prices fall, that means people can consume more, and there'll be more apps written. And it's interesting to see that when I referenced these models that are pretty powerful, it's unimaginable to think that here we are in sort of beginning of '25 where on the PC, you can run a model that required pretty massive cloud infrastructure. So that type of optimizations means AI will be much more ubiquitous. And so therefore, for a hyperscaler like us, a PC platform provider like us, this is all good news as far as I'm concerned.
Brent Thill: Thank you.
Brett Iversen: Thanks, Brent. Operator, next question please.
Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed. |
5,168 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed.
Karl Keirstead: Thank you. Maybe this one as well for Satya and it's also away from the numbers. But Satya, I wanted to ask you about the Stargate news and the announced changes in the OpenAI relationship last week. It seems that most of your investors have interpreted this as Microsoft, for sure, remaining very committed to OpenAI's success. But electing to take more of a backseat in terms of funding OpenAI's future training CapEx needs. I was hoping you might frame your strategic decision here around Stargate, and Amy, whether there's any takeaway for investors from that decision in terms of how you're thinking about CapEx needs over the next several years. Thank you. |
5,169 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yes. Thanks for the question. So we remain very happy with the partnership with OpenAI. And as you saw, they have committed in a big way to Azure and even in the bookings what we recognize is just the first tranche of it. And so you'll see given the ROFR we have more benefits of that even into the future. And obviously, their success is our success because even all the other commercial arrangements that we detailed out in the blog that we put out even commensurate with that announcement. But to your overall point, the thing that I would say is we are building a pretty fungible fleet, right. We're making sure that there's the right balance between training and inference. It's geo distributed. We are working super hard on all the software oppositions, right. I mean just not the software optimizations that come because of what DeepSeek has done, but all the work we have done to, for example, reduce the prices of GPT models, over the years in partnership with OpenAI. In fact, we did a lot of the work on the inference optimizations on it and that's been key to driving, right. One of the key things to note in AI is you just don't launch the frontier model, but if it's too expensive to serve, it's no good, right. It won't generate any demand. So you've got to have that optimization, so that inferencing costs are coming down and they can be consumed broadly. And so that's the fleet physics we are managing. And also, remember, you don't want to buy too much of anything at one time because the Moore's Law every year is going to give you 2x, your optimization is going to give you 10x. You want to continuously upgrade the fleet, modernize the fleet, age, the fleet, and at the end of the day, have the right ratio of monetization and demand-driven monetization to what you think of as the training expense. So I feel very good about the investment we are making and it's fungible and it just allows us to scale more long-term business. |
5,170 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And maybe, Karl, just to reiterate a little of the comments that I made on CapEx because I think it's helpful to surround a bit more in what Satya is saying, a fungible fleet means. We have and I think we talked about it, close to $300 billion of RPO, that is committed customer contracts that need to be delivered on. And the faster we can do that and the more efficiently we can do that, the better off we are not just the OpenAI partnership, which is a piece of that, but with the entire platform that we need to deliver for our customers. And I think the other thing that's sometimes missing is when we say fungible, we mean not just the primary use, which we've always talked about, which is inference, but there is some training, post training, which is a key component. And then they're just running the commercial hub, which at every layer under at every modern AI app that's going to be built, it will be required. It will be required to be distributed, and it will be required to be global. And all of those things are really important because it then means you're the most efficient. And so the investment you see us making CapEx. You're right, the front end has been this sort of infrastructure build that lets us really catch up not just on the AI infrastructure we needed, but think about that as the building itself, data centers, but also some of the catch-up we need to do on the commercial cloud side. And then you'll see the pivot to more CPU and GPU. And that pivot will more directly correlate to revenue and it will be contracted either with the partnership that you asked about with OpenAI or with others. And so I do think the way I want everyone to internalize it is that the CapEx growth is going through that cycle pivot, which is far more correlated to customer contract delivery, no matter who the end customer is.
Karl Keirstead: Thank you.
Brett Iversen: Thanks, Karl. Operator, next question please.
Operator: And the next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. |
5,171 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Operator: And the next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed.
Brad Zelnick: Thank you very much for taking my question. And I'll echo my congrats and gratitude to Brett as well. Satya, as we think about Microsoft's very rich Copilot portfolio, now having been in market for over a year, with the products and precision only getting better and the cost of inference coming down, how do you think about the journey from here and perhaps the ability to package and evolve the go-to-market to address the broadest range of customers and customer requirements out there? Thanks.
Satya Nadella: Thanks, Brad, for the question. In fact you saw us make two announcements recently. One is on the M365 Copilot side, we now have the Copilot Chat. So this is now going to be broadly deployed across the entire install base effectively because you can go have this now turned on by IT and everybody can start using web-grounded chat with all the enterprise controls right away it has Copilot Studio built in. And so that means they can start building agents. So we think of that plus the full Copilot as a good combination that I think will accelerate quite frankly in terms of just seat usage and agent building and what have you. So that's sort of one. And the other thing is you also see even on the consumer side, we just yesterday launched o1, the Think Harder feature on Copilot now that's powered by o1, it's available globally, right. So you can see the benefits of inference optimization and the cost coming down means you can drive more ubiquity of what were features that ones were sort of premium tier and that's all definitely something that we will do across, right. The same thing is happening in GitHub Copilot, same thing in Security Copilot. So across the length and breadth of our portfolio, you'll see that.
Brad Zelnick: Thank you.
Brett Iversen: Thanks, Brad. Operator, next question please.
Operator: The next question comes from the line of Brad Reback with Stifel. Please proceed. |
5,172 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Brad Reback with Stifel. Please proceed.
Brad Reback: That's great. Thank you very much. Satya, if you look out several years, any sense of what percent of inference done on Azure will be done on proprietary models versus open models. And with that said, does it matter to Microsoft at the end of the day? Thanks.
Satya Nadella: Yes, it's a good question because at some level, what you're seeing is effectively lots of models that get used in any application, right. When you look underneath even a Copilot or a GitHub Copilot or what have you, you already see lots of many different models that you build models, you fine tune models, you distill models. Some of them are models that you distill into an open source model. So there's going to be a combination. So we've always maintained that it's always good to have frontier models. You want to always build your application with high ambition using the best model that is available and then optimize from there on. So that's also another side like there's a temporality to it, right. What you start with as a given COGS profile doesn't need to be the end because you continuously optimize for latency and COGS and putting in different mode. And in fact, all that complexity, by the way, has to be managed by a new app server. So one of the things that we are investing heavily on is foundry because from an app developer perspective, you kind of want to keep pace with the flurry of models that are coming in and you want to have an evergreen way for your application to benefit from all that innovation. But not have all the Dev cost or the DevOps cost or what people talk about AIOps costs. So we are also investing significantly in all the app server for any workload to be able to benefit from all these different models, open source, close source, different weight classes. And at the same time, from an operations perspective, it's faster, easier for you.
Brad Reback: Great. Thank you. |
5,173 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Brad Reback: Great. Thank you.
Brett Iversen: Thanks, Brad. Operator, next question please.
Operator: And the next question comes from the line of Brad Sills with Bank of America. Please proceed.
Bradley Sills: Wonderful. Thank you so much. Great to hear about the strength you're seeing in Copilot. Would love to get some color as to where you're seeing that strength? Is it departmental deals, customers moving from proof-of-concept to departmental deals, maybe multiple departmental deals in the enterprise. You mentioned some uptick in usage trends. Would love to get some color on just the common use cases that you're seeing that give you that confidence that, that will ramp into monetization later. Thank you.
Satya Nadella: Yes. I mean, I think the initial sort of set of seats were for places where there's more belief in immediate productivity, a sales team, in finance or in supply chain, where there is a lot of like, for example, SharePoint rounded data that you want to be able to use in conjunction with web data and have it produce results that are beneficial. But then what's happening, very much like what we have seen in the previous generation productivity things is that people collaborate across functions, across roads, right. For example, even in my own daily habit is, I go to chat, I use work tab, I get results, and then I immediately share using pages with colleagues. I sort of call it think with AI and work with people. And that pattern then requires you to make it more of a standard issue across the enterprise. And so that's what we are seeing. It starts maybe at a department level. Quickly, the collaboration network effects will effectively demand that you spread it across. You can do it by cohort and what have you. And so what we've made it easier even is to start with Copilot Chat plus this. And so that gives the enterprise customers even more flexibility to have something that's more ubiquitous.
Bradley Sills: Wonderful. Thank you so much. |
5,174 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Bradley Sills: Wonderful. Thank you so much.
Brett Iversen: Thanks, Brad. Operator, we have time one last question.
Operator: And the last question will come from the line of Brent Bracelin with Piper Sandler. Please proceed.
Brent Bracelin: Thank you for taking the question here. Good afternoon. I wanted to go back to commercial Bookings. Commercial RPO, I think, increased 39 billion sequentially. That's the most we've ever seen on a sequential basis, commercial bookings growth, 75% constant currency. That's 2x higher than we've seen in the last decade. I appreciate there's some volatility with this metric, but it does feel like this quarter there was a bit of a sea change relative to momentum on backlog and bookings. Can you just talk about maybe the breadth of where that strength came from? Was it broad-based? Was there a couple of large deals? Any color there would be helpful? Thanks. |
5,175 | MSFT | 2 | 2,025 | 2025-01-29 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thanks, Brent. It's a great question. We talked a little bit about what are the main drivers, which was one of the Azure commitments that OpenAI has made. And I do want to say, well, that is obviously a big component, you'll continue to see OpenAI make commitment. So I want to separate the concept that it's one time versus an ongoing relationship that will grow as they grow, which it absolutely will. And to your question on what else is participating in that number. First, we did have very good core motions. Our core motions are things like, to your point, renewals of our existing contracts, add-on to those contracts upsell like, for example, Copilot or GitHub Copilot or other processes. And I think that's important. We also had a good E5 quarter, which when we talk a lot about M365 Copilot, I sometimes forget to also talk about suite momentum. And we saw that as well this quarter, which we felt very good about. And then the final component is large Azure commitments. And those really did look as we expected, which is good. To your point, and that you're seeing a really broad-based growth. Those Azure commitments take two forms. One, it's existing customers who've worked through their commitments and are making larger commitments, which is a good commitment signed for the platform. And then you have new customers making commitments, and we also saw that this quarter. And so to your point, sometimes I think a big number that looks like this can make you think it's just one thing. I think you're right. Some of it was one thing, but a lot of it was good execution consistently across the workloads.
Brent Bracelin: Helpful color. Thank you.
Brett Iversen: Thanks, Brad. That wraps up the Q&A portion of today's earnings call. Thank you for joining today and we look forward to speaking with all of you soon.
Satya Nadella: Thank you all.
Amy Hood: Thank you.
Operator: This concludes today's conference. You may disconnect your lines at this time and enjoy the rest of your day. |
5,176 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: Greetings, and welcome to the Microsoft Fiscal Year 2025 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Iversen, Vice President of Investor Relations. Please go ahead. |
5,177 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. We have recast certain prior period amounts to reflect the FY '25 changes to the composition of our segments announced in August 2024. Additional details, including FY '23 and FY '24 recast segment revenue, operating income and product and service level revenue can be found in the financial statements filed on the Investor Relations website. More detailed outlook slides will also be available on the Microsoft Investor Relations website when we provide outlook commentary on today's call. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the Company's first quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's |
5,178 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we'll be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya. |
5,179 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Brett. We are off to a solid start to our fiscal year, driven by continued strength of Microsoft Cloud, which surpassed $38.9 billion in revenue, up 22%. AI-driven transformation is changing work, work artifacts and workflow across every role, function, and business process, helping customers drive new growth and operating leverage. All up, our AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, which will make it the fastest business in our history to reach this milestone. Now I'll highlight examples of our progress starting with infrastructure. Azure took share this quarter. We are seeing continued growth in cloud migration. Azure Arc now has over 39,000 customers across every industry, including American Tower, CTT, L'Oréal, up more than 80% year-over-year. We now have data centers in over 60 regions around the world. And this quarter, we announced new cloud and AI infrastructure investments in Brazil, Italy, Mexico, and Sweden as we expand our capacity in line with our long-term demand signals. At the silicon layer, our new Cobalt 100 VMs are being used by companies like Databricks, Elastic, Siemens, Snowflake, and Synopsys to power their general-purpose workloads at up to 50% better price performance than previous generations. On top of this, we are building out our next-generation AI infrastructure, innovating across the full stack to optimize our fleet for AI workloads. We offer the broadest selection of AI accelerators, including our first-party accelerator, Maia 100 as well as the latest GPUs from AMD and NVIDIA. In fact, we are the first cloud to bring up NVIDIA's Blackwell system with GB200-powered AI servers. Our partnership with OpenAI also continues to deliver results. We have an economic interest in a company that has grown significantly in value, and we have built differentiated IP and are driving revenue momentum. More broadly with Azure AI, we are building an end-to-end app platform to help customers build their own Copilots and |
5,180 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | momentum. More broadly with Azure AI, we are building an end-to-end app platform to help customers build their own Copilots and agents. Azure OpenAI usage more than doubled over the past six months as both digital natives like Grammarly and Harvey as well as established enterprises like Bajaj Finance, Hitachi, KT, and LG move apps from test to production. GE Aerospace, for example, used Azure OpenAI to build a new digital assistant for all 52,000 of its employees. In just three months, it has been used to conduct over 500,000 internal queries and process more than 200,000 documents. And this quarter, we added support for OpenAI's newest model family, o1. We're also bringing industry-specific models through Azure AI, including a collection of best-in-class multimodal models for medical imaging. And with the GitHub models, we now provide access to our full model catalog directly within the GitHub developer workflow. Azure AI is also increasingly an on-ramp to our data and analytics services. As developers build new AI apps on Azure, we have seen an acceleration of Azure Cosmos DB and Azure SQL DB hyperscale usage as customers like Air India, Novo Nordisk, Telefonica, Toyota Motors North America, and Uniper take advantage of capabilities, purpose-built for AI applications. And with Microsoft Fabric, we provide a single AI-powered platform to help customers like Chanel, EY, KPMG, Swiss Air, and Syndigo unify their data across clouds. We now have over 16,000 paid Fabric customers, over 70% of the Fortune 500. Now on to developers. GitHub Copilot is changing the way the world builds software. Copilot enterprise customers increased 55% quarter-over-quarter as companies like AMD and Flutter Entertainment tailor Copilot to their own code base. And we are introducing the next phase of AI code generation, making GitHub Copilot agentic across the developer workflow. GitHub Copilot Workspace is a developer environment which leverages agents from start to finish so developers can go from spec to plan to code all in natural |
5,181 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | developer environment which leverages agents from start to finish so developers can go from spec to plan to code all in natural language. Copilot Auto Fix is an AI agent that helps developers at companies like Asurion and Auto Group fix vulnerabilities in their code over 3x faster than it would take them on their own. We're also continuing to build on GitHub's open platform ethos by making more models available via GitHub Copilot. And we are expanding the reach of GitHub to a new segment of developers introducing GitHub Spark, which enables anyone to build apps in natural language. Already, we have brought generative AI to Power Platform to help customers use low-code, no-code tools to cut costs and development time. To date, nearly 600,000 organizations have used AI-powered capabilities in Power Platform, up 4x year-over-year. Citizen developers at ZF, for example, built apps simply by describing what they need using natural language. And this quarter, we introduced new ways for customers to apply AI to streamline complex workflows with Power Automate. Now on to work. We launched the next wave of Microsoft 365 Copilot innovation last month, bringing together Web, Work, and Pages as the new design system for knowledge work. Pages is the first new digital artifact for the AI age, and it's designed to help you ideate with AI and collaborate with other people. We've also made Microsoft 365 Copilot responses 2x faster and improved response quality by nearly 3x. This innovation is driving accelerated usage, and the number of people using Microsoft 365 daily more than doubled quarter-over-quarter. We are also seeing increased adoption from customers in every industry as they use Microsoft 365 Copilot to drive real business value. Vodafone, for example, will roll out Microsoft 365 Copilot to 68,000 employees after a trial showed that, on average, they save three hours per person per week. And UBS will deploy 50,000 seats in our largest finserve deal to date. And we continue to see enterprise customers coming back to |
5,182 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | UBS will deploy 50,000 seats in our largest finserve deal to date. And we continue to see enterprise customers coming back to buy more seats. All up, nearly 70% of the Fortune 500 now use Microsoft 365 Copilot, and customers continue to adopt it at a faster rate than any other new Microsoft 365 suite. Copilot is the UI for AI and with Microsoft 365 Copilot, Copilot Studio and Agents and now Autonomous Agents, we have built an end-to-end system for AI business transformation. With Copilot Studio, organizations can build and connect Microsoft 365 Copilot to Autonomous Agents, which then delegate to Copilot when there is an exception. More than 100,000 organizations from Ensure, Standard Bank, and Thomson Reuters, to Virgin Money and Zurich Insurance have used Copilot Studio to date, up over 2x quarter-over-quarter. More broadly, we are seeing AI drive a fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes. Dynamics 365 continues to take share as organizations like Evron, Heineken, and Lexmark chose our apps over other providers. And monthly active users of Copilot across our CRM and ERP portfolio increased over 60% quarter-over-quarter. Our Dynamics 365 contact center is also winning customers like Curry's, Le Creuset, and RXO as it brings generative AI to every customer engagement channel. And just last week, we added 10 out-of-the-box autonomous agents to Dynamics 365 that helps customers automatically qualify sales leads, track suppliers and work hand-in-hand with service reps to resolve issues. We're also bringing AI to industry-specific workflows. One year in, DAX Copilot is now documenting over 1.3 million physician patient encounters each month at over 500 health care organizations like Baptist Medical Group, Baylor Scott & White, Baltimore Medical Center, Novant Health, and Overlake Medical Center. It is showing faster revenue growth than GitHub Copilot did in this first year. And new features extend DAX beyond notes helping physicians |
5,183 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | faster revenue growth than GitHub Copilot did in this first year. And new features extend DAX beyond notes helping physicians automatically draft referrals after visit instructions and diagnostic evidence. On top of all this AI innovation, Microsoft Teams usage remains at all-time highs as people use it to streamline all their communications. Nearly 75% of our Teams Enterprise customers now buy Premium, Phone, or Rooms. When it comes to Windows, our new class of Copilot+ PCs is winning new customers. They offer best-in-class AI capability, performance, and value. AMD, Intel, and Qualcomm now all support Copilot+ PCs. This quarter, we also introduced new AI experience only available on Copilot+ PCs like Click to Do, which places an interactive overlay over your desktop to suggest next best actions. And as we approach the end of support for Windows 10 a year from now, we are well positioned to transition our customers to Windows 11, ensuring they benefit from enhanced features and security improvements we've introduced over the past few years. Now on to security. We continue to prioritize security above all else. With our Secure Future Initiative, we have dedicated the equivalent of 34,000 full-time engineers to address the highest-priority security tasks. We have made significant progress to better protect tenants' identities, networks, and engineering systems, and we have created new processes to ensure security is prioritized at every level of the Company. And we continue to take what we learn and turn it into innovations across our products. Security Copilot, for example, is being used by companies in every industry, including Clifford Chance, Intesa Sanpaolo, and Shell to perform SecOps tasks faster and more accurately. And we are now helping customers protect their AI deployments too. Customers have used Defender or Discover and secured more than 750,000 gen AI app instances and used Purview to audit over one billion Copilot interactions to meet their compliance obligations. And all up, we continue to take |
5,184 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Purview to audit over one billion Copilot interactions to meet their compliance obligations. And all up, we continue to take share across all major categories we serve and are consistently recognized by top analysts as a leader in 20 categories, more than any other vendor. Now let me turn to our consumer businesses, starting with LinkedIn. Member growth continues to accelerate with markets in India and Brazil both growing at double digits. We are also seeing record engagement as we introduce new ways for our more than 1 billion members to connect, sell services, get hired, and share knowledge. Our investments in rich formats like video strengthened our leadership in B2B advertising and amplified the value we deliver to our customers. Weekly immersive video views increased 6x quarter-over-quarter, and total video viewership on LinkedIn is up 36% year-over-year. Our AI-powered tools also continue to transform how people sell, learn and hire. In sales, new AI features help every team member perform at the level of top sellers and drive more profitable growth. In Learning, just yesterday, we announced updates to our coaching experience, including personalized career development plans. LinkedIn's first agent hiring assistant will help hirers find qualified candidates faster by tackling the most time-consuming task. Already hirers who use AI Assistant messages see a 44% higher acceptance rate compared to those who don't. And our hiring business continues to take share. Now on to search, advertising, and news. With Copilot, we are seeing the first step towards creating a new AI companion for everyone with new Copilot experience we introduced earlier this month includes a refreshed design and tone along with improved speed and fluency across the web and mobile. And it includes advanced capabilities like voice and vision that make it more delightful and useful and feel more natural. You can both browse and converse with Copilot simultaneously because Copilot sees what you see. More broadly, AI is also transforming |
5,185 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | both browse and converse with Copilot simultaneously because Copilot sees what you see. More broadly, AI is also transforming search, browsers, and digital advertising, and we continue to take share across Bing and Edge. Bing ex-TAC revenue growth outpaced the search market. Now on to gaming. One year since we closed our acquisition of Activision Blizzard King, we are focused on building a business positioned for long-term growth, driven by higher-margin content and services. You already see this transformation in our results as we diversify the ways that gamers access our content. We set new records for monthly active users in the quarter as more players than ever play our games across devices and on the Xbox platform. Game Pass also set a new Q1 record for total revenue and average revenue per subscriber. And as we look ahead, our IP across our studios has never been stronger. Last week's launch of Black Ops 6 was the biggest Call of Duty release ever, setting a record for day one players as well as Game Pass subscriber ads on launch day. And unit sales on PlayStation and Steam were also up over 60% year-over-year. This speaks to our strategy of meeting gamers where they are by enabling them to play more games across the screens, they spend their time on. In closing, we are rapidly innovating to expand our opportunity across our commercial and consumer businesses. In three weeks' time, we will hold our Ignite conference, and I look forward to sharing more then about how we are helping every business function use AI to drive growth in this new era. With that, let me turn it over to Amy. |
5,186 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Thank you, Satya, and good afternoon, everyone. This quarter, revenue was $65.6 billion, up 16%, and earnings per share was $3.30, an increase of 10%. With strong execution by our sales teams and partners, we delivered a solid start to our fiscal year with double-digit top and bottom-line growth. We also saw continued share gains across many of our businesses. In our commercial business, increased demand and growth in long-term commitments to our Microsoft Cloud platform drove our results. Commercial bookings were ahead of expectations and increased 30% and 23% in constant currency. Results were driven by strong execution across our core annuity sales motions and growth in the number of $10 million-plus contracts for both Azure and Microsoft 365. Additionally, we also saw an increase in the number of $100 million-plus contracts for Azure. Commercial remaining performance obligation increased 22% and 21% in constant currency to $259 billion. Roughly 40% will be recognized in revenue in the next 12 months, up 17% year-over-year. The remaining portion, recognized beyond the next 12 months, increased 27%. And this quarter, our annuity mix increased to 98%. In addition to commercial results that were in line with expectations, we also saw some benefit from in-period revenue recognition across Microsoft 365 commercial, Azure, and our on-premises server business. At a company level, Activision contributed a net impact of approximately 3 points to revenue growth, with a 2-point drag on operating income growth and had a negative $0.05 impact to earnings per share. A reminder that this net impact includes adjusting for the movement of Activision content from our prior relationship as a third-party partner to first-party and includes $911 million from purchase accounting adjustments, integration, and transaction-related costs. FX did not have a significant impact on our results and was roughly in line with expectations on total company revenue, segment-level revenue, COGS, and operating expense growth. Microsoft |
5,187 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | in line with expectations on total company revenue, segment-level revenue, COGS, and operating expense growth. Microsoft Cloud revenue was $38.9 billion and grew 22%, roughly in line with expectations. Microsoft Cloud gross margin percentage decreased 2 points year-over-year to 71%. This was slightly better than expected due to improvement in Azure, although the gross margin percentage decrease year-over-year continues to be driven by scaling our AI infrastructure. Company gross margin dollars increased 13% and 14% in constant currency, and gross margin percentage was 69%, down 2 points year-over-year, driven by the lower Microsoft Cloud gross margin noted earlier as well as the impact from purchase accounting adjustments, integration and transaction-related costs from the Activision acquisition. Operating expenses increased 12%, lower than expected due to our focus on cost efficiencies and ongoing prioritization work. Operating expense growth included 9 points from the Activision acquisition. At a total company level, headcount at the end of September was 8% higher than a year ago. Excluding the growth of the Activision acquisition, headcount was 2% higher. Operating income increased 14% and operating margins were 47%, down 1 point year-over-year. Excluding the net impact from the Activision acquisition, operating margins were up 1 point as we continue to drive efficiencies across our businesses as we invest in AI infrastructure and capabilities. Now to our segment results. Revenue from Productivity and Business Processes was $28.3 billion and grew 12% and 13% in constant currency, ahead of expectations, driven by better-than-expected results across all businesses. M365 commercial cloud revenue increased 15% and 16% in constant currency with business trends that were as expected. The better-than-expected result was due to a small benefit from the in-period revenue recognition noted earlier. ARPU growth was primarily driven by E5 as well as M365 Copilot. Paid M365 commercial seats grew 8% year-over-year with |
5,188 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | earlier. ARPU growth was primarily driven by E5 as well as M365 Copilot. Paid M365 commercial seats grew 8% year-over-year with installed base expansion across all customer segments. Seat growth was driven by our small and medium business and frontline worker offerings. M365 commercial cloud revenue represents nearly 90% of total M365 commercial products and cloud services. M365 commercial products revenue increased 2% and 3% in constant currency, ahead of expectations, primarily due to the benefit from in-period revenue recognition noted earlier. M365 consumer products and cloud services revenue increased 5% and 6% in constant currency. M365 consumer cloud revenue increased 6% and 7% in constant currency, with continued momentum in M365 consumer subscriptions, which grew 10% to 84.4 million. M365 consumer cloud revenue represents 85% of total M365 consumer products and cloud services. LinkedIn revenue increased 10% and 9% in constant currency, slightly ahead of expectations with growth across all lines of business. Dynamics revenue grew 14%, driven by Dynamics 365, which grew 18% and 19% in constant currency with continued growth across all workloads and continued share gains. As a reminder, Dynamics 365 represents about 90% of total Dynamics revenue. Segment gross margin dollars increased 11% and 12% in constant currency, and gross margin percentage decreased slightly year-over-year, driven by scaling our AI infrastructure. Operating expenses increased 2% and operating income increased 16%. Next, the Intelligent Cloud segment. Revenue was $24.1 billion, increasing 20% and 21% in constant currency, in line with expectations. Azure and other cloud services revenue grew 33% and 34% in constant currency, with healthy consumption trends that were in line with expectations. The better-than-expected result was due to the small benefit from in-period revenue recognition noted earlier. Azure growth included roughly 12 points from AI services, similar to last quarter. Demand continues to be higher than our available |
5,189 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | growth included roughly 12 points from AI services, similar to last quarter. Demand continues to be higher than our available capacity. Non-AI growth trends were also in line with expectations in total and across regions as customers continued to migrate and modernize on the Azure platform. The non-AI point contribution to Azure growth was sequentially lower by approximately 1 point. In our on-premises server business, revenue decreased 1%. Lower-than-expected transactional purchasing ahead of the Windows Server 2025 launch as well as lower purchasing of licenses running a multi-cloud environment was mostly offset by the benefit from in-period revenue recognition noted earlier. Enterprise and partner services revenue decreased 1% and was relatively unchanged in constant currency. Segment gross margin dollars increased 15%, and gross margin percentage decreased 3 points year-over-year, driven by scaling our AI infrastructure. Operating expenses increased 8% and operating income grew 18%. Now to More Personal Computing. Revenue of $13.2 billion increasing 17% with 15 points of net impact from the Activision acquisition. Results were above expectations, driven by gaming and search. Windows OEM and devices revenue increased 2% year-over-year as better-than-expected results in Windows OEM due to mix shift to higher monetizing markets was partially offset by the lower-than-expected results in devices due to execution challenges in the commercial segment. Search and news advertising revenue ex-TAC increased 18% and 19% in constant currency, ahead of expectations, primarily due to continued execution improvement. We saw rate expansion in addition to healthy volume growth in both Edge and Bing. And in gaming, revenue increased 43% and 44% in constant currency with 43 points of net impact from the Activision acquisition. Results were ahead of expectations, driven by stronger-than-expected performance in both first- and third-party content as well as consoles. Xbox content and services revenue increased 61% with 53 points |
5,190 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | in both first- and third-party content as well as consoles. Xbox content and services revenue increased 61% with 53 points of net impact from the Activision acquisition. Segment gross margin dollars increased 16% and 17% in constant currency with 12 points of net impact from the Activision acquisition. Gross margin percentage was relatively unchanged year-over-year. Our strong execution on margin improvement in gaming and search was offset by sales mix shift to those businesses. Operating expenses increased 49% with 51 points from the Activision acquisition. Operating income decreased 4%. Now back to total company results. Capital expenditures, including finance leases, were $20 billion, in line with expectations, and cash paid for PP&E was $14.9 billion. Roughly half of our cloud and AI-related spend continues to be for long-lived assets that will support monetization over the next 15 years and beyond. The remaining cloud and AI spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals. Cash flow from operations was $34.2 billion, up 12%, driven by strong cloud billings and collections, partially offset by higher supplier employee and tax payments. Free cash flow was $19.3 billion, down 7% year-over-year, reflecting higher capital expenditures to support our cloud and AI offerings. This quarter, other income expense was negative $283 million, significantly more favorable than anticipated due to foreign currency remeasurement and net gains on investments. Our losses on investments accounted for under the equity method were as expected. Our effective tax rate was approximately 19%. And finally, we returned $9 billion to shareholders through dividends and share repurchases. Now moving to our Q2 outlook, which unless specifically noted otherwise, is on a U.S. dollar basis. First, FX. With the weaker U.S. dollar and assuming current rates remain stable, we expect FX to increase total revenue and segment level revenue growth by less than 1 point. We expect FX to have no meaningful |
5,191 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | expect FX to increase total revenue and segment level revenue growth by less than 1 point. We expect FX to have no meaningful impact to COGS or operating expense growth. Our outlook has many of the trends we saw in Q1 continue through Q2. Customer demand for our differentiated solutions should drive another quarter of strong growth. In commercial bookings, we expect strong growth on a growing expiry base driven by increased long-term commitments to our platform and strong execution across core annuity sales motions. As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 70%, down year-over-year, driven by the impact of scaling our AI infrastructure. We expect capital expenditures to increase on a sequential basis, given our cloud and AI demand signals. As I said last quarter, we will stay aligned and, if needed, adjust to the demand signals we see. As a reminder, there can be quarterly spend variability from cloud infrastructure build-outs and the timing of delivery of finance leases. Next, segment guidance, starting with Productivity and Business Processes. We are the market leader when it comes to knowledge-based Copilots and agents in the enterprise space, and we are focused on continuing to gain share across our productivity solutions. Therefore, we expect revenue in Productivity and Business Processes to grow between 10% and 11% in constant currency or $28.7 billion to $29 billion. M365 commercial cloud revenue growth should be approximately 14% in constant currency with moderating seat growth across customer segments and ARPU growth through E5 and M365 Copilot. For H2, we expect revenue growth to remain relatively stable compared to Q2. We continue to see growth in M365 Copilot seats, and we expect the related revenue to continue to grow gradually over time. For M365 commercial products, we expect revenue to decline in the low single digits. |
5,192 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | to continue to grow gradually over time. For M365 commercial products, we expect revenue to decline in the low single digits. As a reminder, M365 commercial products include on-premises components of M365 suites. So, our quarterly revenue growth can have variability primarily from in-period revenue recognition depending on the mix of contracts. M365 consumer cloud revenue growth should be in the mid-single digits driven by M365 subscriptions. For LinkedIn, we expect revenue growth of approximately 10%, driven by continued growth across all businesses. And in Dynamics 365, we expect revenue growth to be in the mid- to high teens, driven by continued growth across all workloads. Next, Intelligent Cloud. Helping our customers transform and grow with innovative cloud and AI solutions is driving continued growth in Azure. Therefore, we expect revenue in Intelligent Cloud to grow between 18% and 20% in constant currency or $25.55 billion to $25.85 billion. Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability primarily from in-period revenue recognition depending on the mix of contracts. In Azure, we expect Q2 revenue growth to be 31% to 32% in constant currency, driven by strong demand for our portfolio of services. We expect consumption growth to be stable compared to Q1, and we expect to add more sequential dollars to Azure than any other quarter in history. We expect the contribution from AI services to be similar to last quarter, given the continued capacity constraints as well as some capacity that shifted out of Q2. And in H2, we still expect Azure growth to accelerate from H1 as our capital investments create an increase in available AI capacity to serve more of the growing demand. And in our on-premises server business, we expect revenue to decline in the low to mid-single digits on a prior year comparable that benefited from purchasing ahead of Windows Server 2012 end of support. And in Enterprise and partner services, we expect revenue growth to be in the low |
5,193 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | ahead of Windows Server 2012 end of support. And in Enterprise and partner services, we expect revenue growth to be in the low single digits. Now to More Personal Computing. We continue to make decisions to prioritize strategic higher-margin opportunities within each of our consumer businesses. Our outlook reflects the improvement in gross and operating margins from this prioritization work across gaming, search, and devices. We expect revenue in More Personal Computing to be $13.85 billion to $14.25 billion. Windows OEM and devices revenue should decline in the low to mid-single digits. We expect Windows OEM revenue growth in line with the PC market to be more than offset by a decline in devices as the trends from Q1 continue. Search and news advertising ex-TAC revenue growth should be in the high teens, with continued growth in both volume and revenue per search. This will be higher than overall search and news advertising revenue growth, which we expect to be in the high single digits. And in gaming, we expect revenue to decline in the high single digits due to hardware. We expect Xbox content and services revenue growth to be relatively flat. We're excited about last week's launch of Call of Duty, where we saw the most Game Pass subscriber adds we've ever seen on a launch day. There are two things about the launch that are different than the Call of Duty launch a year ago, where revenue was mostly recognized in the quarter of purchase. First, the game is available on Game Pass so for players who play through Game Pass, the subscription revenue is recognized over time. Second, the game requires an online connection to play so even for players who purchased the standalone game, revenue recognition will also occur ratably over time. Now back to company guidance. We expect COGS to grow between 11% and 13% in constant currency or to be between $21.9 billion to $22.1 billion, and operating expense to grow approximately 7% in constant currency or to be between $16.4 billion and $16.5 billion. This should result in |
5,194 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | expense to grow approximately 7% in constant currency or to be between $16.4 billion and $16.5 billion. This should result in another quarter of operating margin expansion. Other income and expense is expected to be roughly negative $1.5 billion, primarily driven by our share of the expected loss from OpenAI, which is accounted for under the equity method. As a reminder, we do not recognize mark-to-market gains or losses on equity method investments. As you heard from Satya, our strategic partnership and investment in OpenAI has been pivotal in building and scaling our AI business and positioning us as the leader in the AI platform wave. And lastly, we expect our Q2 effective tax rate to be approximately 19%. In closing, we remain focused on strategically investing in the long-term opportunities that we believe drive shareholder value. Monetization from these investments continues to grow, and we're excited that only 2.5 years in, our AI business is on track to surpass $10 billion of annual revenue run rate in Q2. This will be the fastest business in our history to reach this milestone. We are committed to growing this leadership position across our entire Microsoft Cloud while maintaining our disciplined focus on cost management and prioritization across every team. With that, let's go to Q&A, Brett. |
5,195 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Brett Iversen: Thanks, Amy. We'll now move over to Q&A. Out of respect for others on the call, we request that participants please only ask one question. Operator, can you please repeat your instructions?
Operator: [Operator Instructions] Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Keith Weiss: Congratulations on a really solid quarter. So, Satya, the expansion of capabilities, the speed of innovation, the magnitude of the opportunities ahead for generative AI makes this the most exciting period for software I've seen in my 25 years of covering this space. And based upon this call, it seems like you share that excitement. But in my investor conversation, that excitement also feeds two related questions, and they both have to do with constraints. And the first is like what are the internal constraints or guardrails that Microsoft has when it comes to investing behind these innovations, particularly in relation to the funding of future generations of foundational models, where people were talking about price tags, you want to spend the tens of billions or even $100 billion-plus? And then on the other side of the spectrum, what are the external constraints that Microsoft sees in building out this capacity to meet the demand and capture the opportunity, particularly constraints in your ability to power all these new data centers being built out and powered in an environmentally sustainable fashion? I'd love to get the Microsoft perspective on both those questions. |
5,196 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Thank you, Keith, for those questions. I think on the first point, ultimately, when you think about, let's say, capital outlay for training because that's essentially what you're asking, it is going to be rate limited by your monetization of inference, given generation, right? So just like in the past, we would allocate capital to build out cloud based on the demand signal we were seeing and then we would then project the demand, and that's what we would build for. So, you can think of training essentially as that, right, which is you're building the next-generation model so that then you have a more capable model that then drives more inference demand, right? So ultimately, even with all the scaling laws and what have you, I think you ultimately will normalize to having a pace. In fact, I think the best way to think about even is given that Moore's Law effectively is working on the sort of silicon and system size, so it's just not compute, right, it's efficiencies in compute, it's data as well as algorithms. You will want to sort of keep on that curve, which is you really want to refresh your fleet with the Moore's Law every year and then effectively depreciate it over the period of the life cycle of it. And then the inference demand ultimately will cover how much we invest in training because that's, I think, at the end of the day, you're all subject to ultimately demand. So, the second piece of the external constraints, we have run into, obviously, lots of external constraints because this demand all showed up pretty fast, right? I mean, if you think about even the most hit product of this generation all are in our cloud, right, whether it's ChatGPT, whether it's Copilot, whether it's GitHub Copilot or even DAX Copilot, I mean, pick the top four or five products of this generation, they're all sort of in and around our ecosystem. And so therefore, we ran into a set of constraints, which are everything because DCs don't get built overnight. So, there is DCs, there is power. And so that's sort of |
5,197 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | which are everything because DCs don't get built overnight. So, there is DCs, there is power. And so that's sort of been the short-term constraint. Even in Q2, for example, some of the demand issues we have or our ability to fulfill demand is because of, in fact, external third-party stuff that we leased moving up. So that's the constraints we have. But in the long run, we do need effectively power and we need DCs. And some of these things are more long lead. But I feel pretty good that going into the second half of even this fiscal year, that some of that supply/demand will match up. |
5,198 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Brent Thill with Jefferies. Please proceed.
Brent Thill: Amy, good to hear the reacceleration in the back half for Azure. I guess many are asking, 34% growth in Q1 falling to low 30s. I know the comp is a couple of points harder, but is there anything else you're contemplating in that guide for Q2 to see that deceleration other than a tougher comp?
Amy Hood: Thanks, Brent. Maybe this is a great question because I can sort of reiterate some of the points I made and tie them together a little bit. In Q1, the 34% in CC, as we talked about, that upside versus the 33% that we had guided to was primarily due to some revenue recognition benefits. And so, I think about that on a sort of a pure consumption basis and AI as being 33%. And you think about 1 point or 2 of decel that we've guided to, and the majority of that is due to, unfortunately, some supply pushouts that I mentioned and then Satya reiterated in terms of AI supply coming online that we counted on. The underlying consumption growth is stable Q1 to Q2. And so, to your question on some ins and outs, it is certainly some ins and outs. I do, as you heard, have confidence as we get a good influx of supply across the second half of the year, particularly on the AI side that we'll be better able to do some supply-demand matching and hence, while we're talking about acceleration in the back half. I'll also take the opportunity to say, when you see usage in AI workloads, we always intend to think about that as just a GPU exercise. The importance of having GPUs and CPUs be able to run these workloads is also important. So that's a piece of the acceleration in H2 as well.
Operator: The next question comes from the line of Mark Moerdler with Bernstein. Please proceed. |
5,199 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Mark Moerdler with Bernstein. Please proceed.
Mark Moerdler: Congratulations on the quarter. The question every investor obviously asks is a question on the CapEx growth and the CapEx spend. Obviously, half of that facility is an equivalent that have a longer life, but the other half is the rest of the components. Can you give any color on how you think of that growth? Does it return to the traditional approach, where basically CapEx is going to grow in line or slightly slower than cloud revenue? And if so, any sense of the timing? Do we have enough facilities online by sometime next year, et cetera? Any color would be appreciated.
Amy Hood: Thanks, Mark. I think in some ways, it's helpful to go back to the cloud transition that we worked on over a decade ago, I think, in the early stages. And what you did see and you'll see us do in the same time is you have to build to meet demand. Unlike the cloud transition, we're doing it on a global basis in parallel as opposed to sequential, given the nature of the demand. And then as long as we continue to see that demand grow, you're right, the growth in CapEx will slow and the revenue growth will increase. And those two things, to your point, get closer and closer together over time. The pace of that entirely depends really on the pace of adoption. And to Satya's point, some of that spend goes towards building the next training infrastructure so you won't see all of it in COGS. Some of it goes to OpEx when you're spending it on training. But in general, that's a healthy way to think about the balance as that over time those do and should like the last cycle get closer together.
Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed. |
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