With quarterly cloud revenue jumping 22% to a staggering $28.5 billion, Microsoft CEO Satya Nadella this week laid out three priorities for the world’s #1 cloud provider requiring it to balance an intense focus on fast-changing customer needs with aggressive AI investments plus ongoing cost-control measures.
During the April 25 earnings call, both Nadella and in particular CFO Amy Hood talked about the company’s “pivot to the future” as an animating force triggered by the explosive rise of AI as not only a world-shaping technology but also a revenue supercharger for Microsoft.
As an aside, I also have to say that I was delighted to see that Nadella, across the entire 50-minute call, did not even once utter the hollow bromide “do more with less,” a phrase he invoked numerous times in the fiscal-Q2 call three months ago.
Instead spoke in more substantive ways about the challenges and opportunities business leaders are facing today: aligning costs with revenue, determining the role that powerful new AI tools can play in today’s highly disruptive business environment, finding and keeping great talent, and moving more rapidly and more intelligently in our data-driven world.
At the very top of his opening remarks, Nadella framed out his vision for Microsoft’s next year or two by making four very specific and pointed comments. The first was an unmistakable declaration that while Microsoft Cloud accounts for 54% of the company’s total revenue–$28.5 billion out of a total of $52.9 billion–the cloud is the absolute core of the entire Microsoft empire. Here’s his opening sentence: “The Microsoft Cloud delivered over $28 billion in quarterly revenue, up 22% and 25% in constant currency, demonstrating our continued leadership across the tech stack.”
Okay, so that clears away any notions that cloud is “just a part” of a much bigger whole, and that it has somehow overnight changed into an “AI company.” No, it’s a wildly successful and big cloud company that’s driving aggressively into AI.
And right after laying out those cloud results, Nadella spelled out precisely what Microsoft is focusing on in these days of disruption and uncertainty:
“We continue to focus on three priorities:
- “First, helping customers use the breadth and depth of the Microsoft Cloud to get the most value out of their digital spend.
- “Second, investing to lead in the new AI wave across our solution areas, and expanding our TAM.
- “And third, driving operating leverage, aligning our cost structure with our revenue growth.”
I’ll delve into more detail next week about Microsoft’s Q3 numbers and the commentary from Nadella and Hood, but wanted to kick things off with this rather remarkable set of perspectives from Nadella on the centrality of the cloud to everything Microsoft does and what it will do with AI, and how the company is being fully mindful of the current cautious state of the market while also preparing for big growth ahead.
Final Thought
For perspective, here are the revenue figures for Microsoft Cloud over the past five quarters, starting one year ago:
- FY22 Q3: $23.4 billion
- FY22 Q4: $25.1 billion
- FY23 Q1: $25.7 billion
- FY23 Q2: $27.1 billion
- FY23 Q3: $28.5 billion
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