Microsoft sees datacentre investments key to AI leadership

Microsoft announced revenue of $61.9bn for the quarter which ended 31st March 2024, representing an increase of 17% over the same quarter last year.

The company’s cloud business grew 23% and contributed $35.1bn in revenue. Microsoft’s Intelligent Cloud business grew 21%, with revenue of $26.7bn. This business unit comprises the server product line and cloud services revenue, which increased 24% driven by Azure and other cloud services revenue growth of 31%.

Microsoft’s Office Commercial products and cloud services business posted revenue growth of 13% driven by Office 365 Commercial revenue growth of 15%. LinkedIn revenue increased 10% and its Dynamics products and cloud services family grew by 19%. The Dynamics 365 product range posted revenue growth of 23%.

Its More Personal Computing unit, which includes Windows, reported revenue of $15.6bn, with an 11% increase in Windows OEM (where PC manufacturers preinstall Windows) revenue, and Windows Commercial products and cloud services revenue growth of 13%.

When asked about the company’s datacentre growth, which some industry observers expect to hit $100bn in terms of capital expenditure, CEO Satya Nadella said: “At a high level, the way we, as a management team, talk about it is that there are two sides to this – there is training and there’s inference.

“Given that we want to be a leader in this big generational shift and paradigm shift in technology, that’s on the training side. We want to be able to allocate the capital required to essentially be training these large foundation models and stay in the leadership position there. And we’ve done that successfully all the way today, and you’ve seen it flow through our P&L [profit and loss].”

He said Microsoft would be allocating capital to become a leader in AI. “We plan to essentially keep taking that forward,” he added.

Looking at whether the maturity of AI was affecting IT leaders’ Azure cloud plans, Amy Hood, executive vice-president and chief financial officer of Microsoft, said Microsoft was not seeing projects start to transition from core cloud consumption to AI projects. Instead, she said, Microsoft was seeing a return to growth in IT migration projects, adding: “You’re seeing work in the data space again, and you’re seeing AI projects start.”

Rather than spending from organisations’ IT budgets, she said the heads of customer service and heads of marketing are making the IT investments: “I do think that will be important as we think about the opportunity ahead. It’s about spending in other areas that we don’t traditionally think of as being in the IT budget spent under a CIO.”

She urged IT leaders deploying workloads in the cloud to ensure they are using the right optimisations. “It’s something we encourage customers to do. You want to run your workloads as efficiently as you possibly can. It’s critical to customers being able to grow and get value,” she concluded.

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