Microsoft has tried to convince investors that AI is paying off, but they appear unimpressed by news of customer adoption and revenue revealed Tuesday in the software giant's Q4 and full-year results for 2024.

For the full year, Microsoft hauled in $245.1 billion and racked up $88 billion in net income - up 16 and 22 percent respectively. For the quarter, revenue of $64.7 billion and net income of $22 billion were up 15 and 10 percent apiece.

On the earnings call, execs talked up the impact of AI.

The GitHub Copilot has won 77,000 users in the two years since its debut, and CEO Satya Nadella noted the revenue it generates tops all of GitHub earnings at the time Microsoft acquired the code locker in 2018. GitHub was private then and thought to have revenue of around $300 million a year. Nadella said GitHub's annual revenue run rate is now $2 billion and Copilot accounted for over 40 percent of its growth over the last year - but didn't enumerate further.

Microsoft 365 commercial revenue grew by 13 percent, with Copilot for Microsoft 365 one of the main drivers. Copilot for Microsoft 365 customers increased more than 60 percent quarter-over-quarter. IBM spinoff Kyndryl has adopted it, as has Disney. Accounting giant EY will deploy it to over 150,000 staff.

But revenue growth was down a couple of points compared to 2023's full year results.

Copilot Studio - a tool that allows creation of custom Copilots - has racked up 50,000 users, up 70 percent quarter-over-quarter. Did it make money? We don't yet know.

In the cloud, Azure has won 60,000 AI customers and their average spend per customer continues to grow. Revenue for Azure and other cloud services grew by 29 percent year on year in Q4 - up three points compared to the outcome for 2023 and the same growth rate posted by Google's Cloudy services. (AWS grew by 17 percent last time Amazon revealed numbers.)

CEO Satya Nadella told investors growth in Azure's market share was driven by AI.

CFO Amy Hood told investors that the Azure result could have been better still, but for some softness among European buyers and cloud capacity constraints that she said impacted AI and Azure and "remained in Q4 and will remain in H1."

Hood revealed Redmond's quarterly capex was $19 billion, adding "Cloud and AI-related spend represents nearly all of our total capital expenditures." Of that, "roughly half is for infrastructure needs where we continue to build and lease datacenters that will support monetization over the next 15 years and beyond."

"The remaining cloud and AI-related spend is primarily for servers - both CPUs and GPUs to serve customers based on demand signals," she added, then predicted Microsoft will spend more on all these items in FY 2025.

Surface slips, on-prem to follow

For Q4, Microsoft's on-prem server business grew two percent thanks to demand for hybrid solutions, although Hood noted "slightly lower than expected transactional purchasing."

Next year, she predicted the server business will decline.

"In our on-premises server business, we expect revenue to decline in the low single digits as continued hybrid demand will be more than offset by lower transactional purchasing," she warned. She also predicted on-prem Office sales will dip mid to high teens next year.

Those sales slides would mean on-prem joins the only category of Microsoft products that went backwards in Q4: devices, which saw an eleven percent revenue retreat.

Hood was untroubled by that outcome, noting it was expected as Microsoft focused on premium products. Sales of Windows to OEMs increased four percent, so Microsoft's not worried the whole PC market is sliding. Indeed, Hood and Nadella both expressed optimism that Copilot Plus PCs will boost sales.

During the Q&A section of the earnings call, financial analysts wanted to know when AI would make a discernible difference to the bottom line and margins. Hood and Nadella predicted customer enthusiasm for the tech means the numbers will improve - perhaps even faster than during the years Microsoft's focus was building Azure. The two conceded they're well aware of the need to balance capital expenditure to demand - but were also firm about the need to build AI and datacenter infrastructure now.

Nadella was asked when the benefits of Copilot would be as obvious for Microsoft 365 as they are for developers.

He answered by offering a scenario in which a sales person receives an email from a customer - at which point Copilot steps in, detects that the mail relates to an order, links the mail to a CRM record, then writes and sends an email that references info from the CRM.

AI could then escalate the issue and notify a Teams user.

"Those are the kinds of workflows that are getting built within IT or by end users themselves, what used to be line of business applications to us are Copilot extensions going forward," Nadella explained, suggesting workflows will soon be driven by Copilots.

Which sounds great - but perhaps not to Microsoft investors. The share price dragged from over $429 to $391 in after-hours trading, before rebounding to around $411. ®

https://www.theregister.com//2024/07/31/microsoft_q4_2024/