Microsoft's artificial intelligence (AI) initiatives are delivering unprecedented growth, with the company announcing that its AI business is on track to surpass $10 billion in annual revenue run rate next quarter, marking the fastest pace toward that milestone in the company's history.
"AI-powered transformation is transforming work, work artifacts and workflows across every role, function and business process, helping customers drive new growth and operational leverage," CEO Satya Nadella told analysts during the company's first-quarter earnings call on Wednesday (October 30).
The tech giant said its AI momentum is evident across its product portfolio, with usage of its Azure OpenAI service more than doubling in the past six months. Leading enterprises are rapidly adopting Microsoft's AI tools, with nearly 70% of Fortune 500 companies using Microsoft 365 Copilot, the company's AI-powered workplace assistant.
Supply constraints remain a challenge as Microsoft works to meet growing demand for AI computing resources. "Demand continues to exceed our available capacity," said Microsoft Chief Financial Officer Amy Hood, adding that some of the AI capacity expected for the second quarter has shifted to the latter part of the fiscal year.
The company is aggressively expanding its AI infrastructure globally, announcing new cloud and AI investments in Brazil, Italy, Mexico and Sweden. Microsoft is diversifying its AI computing capabilities with "a broad selection of AI accelerators, including our first-party accelerator, Maya 100, as well as the latest GPUs from AMD and Nvidia," Nadella said.
Microsoft's partnership with OpenAI continues to yield significant benefits. "We have an economic interest in a company that has grown significantly in value, and we've built differentiated IP and are accelerating revenue growth," Nadella said. According to Hood, the company has invested $13 billion in OpenAI so far.
Early enterprise adoption shows promising productivity gains. Nadella gave the example of Vodafone, which "will roll out Microsoft 365 Copilot to 68,000 employees, because a test showed that, on average, they saved three hours per week per person."
The company is also seeing strong progress in specialized AI applications. Nadella highlighted that DAX Copilot, Microsoft's AI assistant for healthcare, "is now documenting more than 1.3 million physician-patient encounters every month across more than 500 healthcare organizations."
Despite the rapid growth, Microsoft is facing challenges in scaling its AI infrastructure. "DCs [data centers] aren't built overnight. So there's DCs, there's power, and so that's been a short-term constraint," Nadella explained. However, he expressed confidence that "even in the second half of this fiscal year, supply will match some of the demand."
The company's AI-driven growth is part of a broader strong performance, with Microsoft cloud revenue reaching $38.9 billion in the quarter, up 22% from last year. Microsoft's stock surged following the earnings announcement, reflecting investors' confidence in the company's AI strategy and execution.