Microsoft Cloud Revenue Soars Amid Surging AI Demand
Google Cloud just a day prior announced a 35% growth in revenue. Skyrocketing cloud services revenues and customers' AI investments helped bring Microsoft's latest quarterly earnings to $65.6 billion. Microsoft on Wednesday revealed financial results for its fiscal year 2025 first quarter, which ended Sept. 30. Overall Microsoft revenue for the quarter totaled $61.9 billion, an increase of 17%. Perhaps more importantly, revenue growth in the company's hyperscaler business is helping leadership make the case that its investments in infrastructure for artificial intelligence solutions are paying off.
Satya Nadella's Vision
Microsoft chairman and CEO Satya Nadella said Microsoft expects its AI practice to log an annual revenue run rate of $10 billion in the next quarter. That would occur in record time for any Microsoft business. “AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process," Nadella said in a statement. “We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage.”
AI Investments Paying Off
The OpenAI investor attributed 12 percentage points of growth to its AI services, and executives hailed the numbers as a validation for their steep investments in AI infrastructure. Microsoft Cloud's gross margin percentage decreased from 73% to 71% year-over-year "driven by scaling our AI infrastructure." Executives told investors that demand for Microsoft AI solutions currently exceeds the vendor's capacity. Nadella said Azure OpenAI usage has increased by more than double over the last half-year.
Commercial Success and Growth
On the productivity side, commercial revenue for Microsoft 365 (which includes the OpenAI-based Copilot tool) grew 13%, and seats grew by 8%. Daily Microsoft 365 Copilot users are doubling quarter-over-quarter, Nadella said. Commercial bookings across the portfolio grew 30%, with Microsoft citing "large, long-term Azure contracts." Microsoft did note, however, that enterprise and partner services revenue declined 1%.
Competitor Growth
Rival hyperscaler platform Google Cloud also celebrated its gains this week. Google Cloud accounted for $11.4 billion of parent company Alphabet's $88.3 billion in the quarter, but Google Cloud revenues grew 35%. Alphabet CEO Sundar Pichai noted that Google Cloud is tapping into AI through infrastructure, its Vertix platform for customizing foundational models, the Gemini-connected BigQuery data platform, AI-based cybersecurity offerings, and most recently a customer engagement suite. "Our technology leadership and AI portfolio are helping us attract new customers, win larger deals, and drive 30% deeper product adoption with existing customers," Pichai said in the earnings call.
Amazon Web Services (AWS), another popular hyperscaler, will announce its earnings on Thursday.
