Microsoft’s quarterly results reveal its expected AI revenue for 2024: $13 billion. However, it invests $22.6 billion in infrastructure every quarter.
As if that weren’t enough, it also faces the threat of Chinese innovation.
Why it matters. The numbers speak for themselves: The financial equation for AI systems remains complex. Generating significant revenue—already growing 175% year over year—requires massive infrastructure investments. Now, Chinese innovation threatens to make some of that investment obsolete.
The background. Microsoft dominates the enterprise AI market thanks to its early alliance with OpenAI. But the arrival of DeepSeek, which has developed more efficient, cheaper, open-source models, has shaken the industry.
Microsoft is in a race against time. It must monetize its massive AI investment quickly while facing increasing competitive pressure from China.
The numbers:
- $13 billion (annualized) in AI systems revenue.
- $22.6 billion invested in infrastructure per quarter.
- 31% Azure growth, below expectations.
- $24.11 billion in quarterly net income, up 10% year over year, exceeding expectations.
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Setting the agenda. Microsoft’s consolidation as a leader in enterprise AI is thanks to Copilot, its assistant for Microsoft 365. The company says more than 160,000 businesses use it, with over 400,000 personalized agents.
Microsoft is transitioning to a model where AI systems integrate across all business lines:
- Windows will include AI capabilities in 15% of high-end laptops.
- LinkedIn is using AI systems to improve its recruiting platform.
- Xbox Cloud Gaming continues breaking records with 140 million hours streamed.
- GitHub Copilot has more than 150 million active developers.
AI developments create a striking contrast in Microsoft’s financials. While Azure—the centerpiece of CEO Satya Nadella’s era—grows slower than expected, new AI-based businesses are exploding, up 157%.
- Copilot usage doubled last quarter, and companies like Novartis expanded their adoption to 40,000 employees.
- Although gaming revenue dropped 7%, Microsoft is confident AI tools will help revive the segment.
Going deeper. One key question is whether Microsoft will sustain this level of investment if Chinese efficiency gains trigger an AI price war.
Microsoft argues demand for AI models will grow exponentially as costs decline, offsetting current investments. The question is whether investors share this optimism.
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