Booming customer demand for Microsoft Cloud and AI services revealed itself in multiple ways during Microsoft’s Q4 earnings call, and CEO Satya Nadella said Azure’s 39% Q4 growth was triggered by three distinct factors.
Quick refresher: For fiscal Q4 ended June 30, Microsoft posted cloud revenue of a whopping $46.7 billion, up 27%, with Azure accounting for almost $19 billion of that as Azure revenue jumped 39% for the quarter.
During the Q4 earnings call late last month, Nadella was asked to describe the types of customer demand that have, for the second straight quarter, pushed Azure revenue far above expectations.
Nadella pinpointed three primary drivers:
- ongoing strength for on-prem-to-cloud migrations;
- the rapid scaling of cloud-native applications such as e-commerce; and
- new AI workloads.
AI Agent & Copilot Summit is an AI-first event to define opportunities, impact, and outcomes with Microsoft Copilot and agents. Building on its 2025 success, the 2026 event takes place March 17-19 in San Diego. Get more details.
Let’s take a quick look at what Nadella said about each.
1. On-prem migrations to the cloud. “A good example would be what I remarked about with Nestle,” a massive transformation effort that Nadella earlier in the call had referred to as “one of the largest and most-successful migrations in business history.” Nadella said Azure is now the home for more than 200 SAP instances, more than 10,000 servers, and 1.2 petabytes of data to Azure.
“That’s a classic example — whether it’s VMware migrations or migrations of SAP or even just our own server migrations, they’re pretty healthy.”
For anyone who might think that market segment is tapped out, Nadella begs to differ. “It turns out that we’re still not anywhere close to the finish line — at best, we’re maybe in the middle innings of that.”
2. Rapid scaling of cloud-native apps. “The second thing that’s also happening is cloud-native applications that are scaling. This is even excluding all of the AI stuff, just the classic cloud-native e-commerce company, let’s say. These are scaling in a big way,” Nadella said.
That success among that cohort of customers has set off a land-and-expand dynamic.
“Some of those customers were not on Azure previously, but now they’re increasingly there because they have come for AI, perhaps, but they now stay for more than AI.”
3. AI workloads. “Every Azure region is now AI-first. All of our regions can now support liquid cooling, increasing the fungibility and the flexibility of our fleet,” Nadella said in his opening remarks. “And we are driving and riding a set of compounding S-curves across silicon, systems, and models to continuously improve the efficiency and performance for our customers.
Take, for example, the GPT4.o family of models, which have the highest volume of inference tokens. Through software optimization alone, we are delivering 90% more tokens for the same GPU compared to a year ago.”
Final Thought
I recently wrote that Microsoft’s fiscal-Q4 results are the most-impressive set of quarterly numbers the business world has ever seen, featuring not only massive scale across all parts of its business but also stunning growth rates for a business that large.
Two perfect examples of that are the numbers I cited near the top for the Microsoft Cloud overall, up 27% to $46.7 billion for the quarter, and for Azure, up 39% in the quarter to about $19 billion.
I say “about $19 billion” because Microsoft did not release a specific Q4 revenue figure but did, for the first time ever, quantify Azure revenue by saying it exceeded $75 billion for the fiscal year, which equates to a Q4 base of about $19 billion.
And with Nadella attributing Azure’s big jump to strong performances in three huge market segments, we should probably expect to see similar numbers in the quarters to come.
Once again, well done, Microsoft!
Ask Cloud Wars AI Agent about this analysis
