Satya Nadella insists people are using Microsoft’s Copilot AI a lot
Microsoft delivered a solid earnings report Wednesday with revenue of $81.3 billion for the quarter (up 17%), net income of $38.3 billion (up 21%) and record-breaking Microsoft cloud revenue of more than $50 billion.
But the stock came under significant pressure on Thursday as investors worried about how much the tech giant was spending to build out its cloud and wondered whether that investment would pay off. Microsoft CEO Satya Nadella says the answer to that question is yes and spent a lot of time on the earnings call making that point.
Microsoft spent almost as much on capital expenditures in the first half of the current fiscal year as it did in all of last year. And the numbers are truly enormous: Microsoft spent $88.2 billion in capital expenditures last year and $72.4 billion so far this year.
Much of that spending is to deliver AI to companies and large AI labs, especially OpenAI, and Anthropic. The big question among investors is: will the expenditure lead to more use and ultimately to profit?
Investors are worried that Microsoft’s flagship cloud product, Azure, and the Microsoft 365 apps haven’t grown as quickly as they wanted.
“The fact that both the Azure and M365 segments fell a bit short is the main negative we’re hearing,” Wall Street analyst for UBS Karl Keirstead wrote in his research note on Thursday. (Keirstead isn’t concerned about that, though, and recommends buying the stock.)
Still, it’s been a few months news reports distributed that people didn’t really want to use Microsoft’s AI, despite Copilot being woven into all kinds of Microsoft products.
Nadella spent much of his time on the earnings call doing what can best be described as PR about AI use. Despite his pitch, some of the numbers he gave were pretty lame.
For example, Nadella said the number of daily users of its Copilot consumer AI products had grown “nearly 3x year-over-year.” This refers to AI chats, the news feed, search, browsing, shopping, and “operating system integrations.”
He did not say how many actual users that represents, and Microsoft declined to comment or specify.
Last year, indoors its annual reportthe company said it surpassed 100 million monthly active Copilot users, but that included both commercial and consumer users. A Microsoft spokesperson tells TechCrunch that number has grown to a total of 150 million. Again, that includes commercial and consumer users.
He was more up front with Microsoft’s encryption AI, GitHub Copilot, saying it now has 4.7 million paid subscribers, up 75% year over year. That appears to be a healthy company. Last year, Microsoft said in its annual report that GitHub Copilot had 20 million users, a figure that includes those who opted for the free tier.
He also said that Microsoft 365 Copilot now has 15 million paid licenses from companies that buy it for their employees. This comes from a base of 450 million paid seats, the company said.
And Nadella called the growth of Dragon co-pilotMicrosoft’s AI agent for medical healthcare professionals (a competitor to super-hot startup Harvey). He said this product is available to 100,000 healthcare providers and was used to document 21 million patient encounters during the quarter, a threefold increase year over year.
Will the billions spent on data centers be worth it? Nadella clearly thinks so. He and CFO Amy Hood said on the earnings call that demand for AI services across all products far exceeds data center supply, so all new equipment is essentially booked at capacity for its lifespan.
