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AI cloud leads Microsoft's performance, AI sales are expected to exceed billions of dollars in the next quarter

殿堂级话痨付
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After experiencing a slowdown in growth in the previous quarter, the latest financial report shows that Microsoft's cloud business has recovered its growth rate. On October 31st, Microsoft released its financial report for the first quarter of fiscal year 2025 (ending on September 30th, 2024). According to the financial report, Microsoft's first quarter revenue was $65.6 billion, a year-on-year increase of 16%. The net profit was 24.7 billion US dollars, a year-on-year increase of 11%. Although the cloud business recovered its growth rate in the first quarter, Microsoft's stock price fell nearly 4% in after hours trading due to its expected revenue growth of 18% to 20% for smart cloud in the next quarter and continued increase in expenses.
Specifically, the revenue of Microsoft's Intelligent Cloud division was $24.1 billion, a year-on-year increase of 20%. Among them, Azure and other cloud service revenue increased by 33%, higher than the previously expected growth rate of 28% to 29%. About 12 percentage points of Azure's growth comes from AI services. During the earnings conference call, Amy Hood, Microsoft's Executive Vice President and Chief Financial Officer, stated that "the increased demand for the Microsoft Cloud platform and the growth in long-term commitments have driven our performance. In addition, we have seen an increase in the number of contracts for Azure exceeding $100 million
Meanwhile, Microsoft will continue to invest in AI infrastructure. In the first fiscal quarter, Microsoft's capital expenditures, including financing leases, were $20 billion, an increase from $19 billion in the fourth fiscal quarter of 2024. Amy Hood stated that this data is in line with expectations, with half of the cloud and AI related expenditures continuing to be used for long-term assets and the other half for servers (including CPUs and GPUs). Microsoft will continue to build and lease data centers. Due to Microsoft's expectation of a slowdown in the growth of its intelligent cloud business in the next quarter, and given that capital expenditures for cloud and AI demand will increase quarterly, this means that the return on investment in artificial intelligence may take longer than previously imagined.
In addition, Microsoft expects Azure's revenue growth in the first quarter of fiscal year 2025 to be approximately 31% to 32%, and has stated that Azure's quarter on quarter revenue will exceed any quarter in history. Considering the ongoing capacity constraints and the transfer of some production capacity from the second quarter, Microsoft expects the contribution of AI services to be similar to the previous quarter. Microsoft expects Azure's growth to be higher in the second half of the year than in the first half, as its capital investment will increase available AI capacity to meet the growing demand.
Microsoft Chairman and CEO Satya Nadella stated in a conference call that Microsoft's AI business revenue is expected to exceed $10 billion in the next quarter. In the past six months, the usage of Azure Open AI has more than doubled as digital native enterprises such as Grammarly and Harvey, as well as well-known companies such as Bajaj Finance, Hitachi, KT, and LG, have shifted their applications from testing to production.
More personal computing business revenue was $13.2 billion, a year-on-year increase of 20%. Windows OEM and device revenue increased by 2%. Thanks to the acquisition of Activision Blizzard, Xbox content and services revenue increased by 61%.
Satya Nadella stated that the release of Call of Duty: Black Ops 6 last week was the largest Call of Duty release in history, setting a record for the increase in first day players and Game Pass subscribers on the day of release. Unit sales on PlayStation and Steam also increased by over 60% year-on-year.
In July this year, Microsoft said that it had decided to integrate channels in the Chinese Mainland market, and customers could still access Microsoft's comprehensive consumer products and services through retail partners and Microsoft.com.
From the disclosed financial data, it can be seen that in recent years, Microsoft has placed more emphasis on AI, while the revenue from hardware products has continued to decline. Before the 2023 fiscal year, Microsoft will separately disclose the revenue of its Surface products. In the 2023 fiscal year, Microsoft will include Surface data disclosure in device revenue. Entering the 2023 fiscal year, equipment revenue continues to decline. During the first quarter conference call, Amy Hood predicted that Windows OEM and device revenue would maintain mid to low single digit growth in the next quarter. The growth of Windows OEM revenue is consistent with the PC market, but the decline in device revenue will far offset this growth
However, with the landing of AI technology, Microsoft's hardware devices may usher in a turning point. Research firm Canalys predicts that the shipment of personal computers with AI capabilities will grow rapidly, reaching 19% by 2024 and soaring to 60% by 2027.
Microsoft's productivity and business processes department is the most stable department, with revenue of $28.3 billion in the new fiscal quarter, a year-on-year increase of 12%. The revenue from Office commercial products and cloud services increased by 13%, attributed to a 15% growth in Office 365 commercial revenue. LinkedIn revenue increased by 10% in the quarter, while Office consumer products and cloud services revenue increased by 5%.
Satya Nadella stated during a conference call that nearly 70% of Fortune 500 companies are currently using Microsoft 365 Copilot.
On the other hand, the conflict between Microsoft and Google has recently escalated. On October 28th, Rima Alaily, Microsoft's Deputy General Counsel, published a blog post stating that Google will establish the "Artificial Lawn" organization this week, which aims to discredit Microsoft and mislead the public in front of competition agencies and policy makers. Google is not concerned about Microsoft's services in the cloud market, but rather considers smearing competitors anywhere. Microsoft always listens to genuine feedback from customers, partners, and regulatory agencies in terms of product, licensing, and business strategy, and quickly makes changes.
The conflict between Google and Microsoft in the cloud market is not limited to a verbal battle, but also involves legal means. Prior to Microsoft's recent statement condemning Google, Google had also initiated several lawsuits and condemnation of Microsoft's monopoly this year.
In September of this year, Google submitted an antitrust complaint to EU regulatory agencies. Google stated in a statement that for many years in the field of productivity software, Microsoft has locked customers in Teams. Now Microsoft is using the same strategy to drive the company to use its cloud platform Azure. Microsoft's licensing terms restrict European customers from transferring their current Microsoft workloads to competitors' clouds or obtaining transfer licenses at an astonishing 400% price.
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