Microsoft just posted a monster quarter, and the numbers leave no doubt: cloud and AI are no longer optional, they’re essential. With Microsoft Cloud revenue topping $42.4 billion, up 22% in constant currency, and surging demand across industries, this quarter confirms what many already suspected, AI and cloud are driving a new era of enterprise growth.
Microsoft Cloud: Still the Engine
Microsoft Cloud continues to outperform. Revenue hit $42.4 billion, beating expectations and growing 20% year-over-year (22% in constant currency). Even as Microsoft invests heavily in AI infrastructure, which trimmed its cloud gross margin by 3 points (to 69%), the demand more than justifies the spend. Commercial bookings jumped 18%, thanks in part to large Azure deals like the one with OpenAI and commercial remaining performance obligations rose 34% to $315 billion.
Azure Keeps Surging, AI Plays a Key Role, but It’s Not the Whole Story
The Intelligent Cloud segment brought in $26.8 billion, with Azure and other cloud services growing a remarkable 33% (35% in constant currency). AI contributed 16 points of that growth, but CFO Amy Hood pointed out that the bulk of Azure’s strength came from its non-AI business. Enterprises are ramping up cloud migrations, and Azure is increasingly the go-to for critical workloads, VMware, SAP, Oracle.
Azure’s database and analytics business is booming too. Postgres (now used by 60% of the Fortune 500), Cosmos DB, and Microsoft Fabric are seeing surging adoption. OneLake, their multi-cloud data lake, has grown more than 6x in just a year. Even AI workloads like ChatGPT rely on these same backend services, blurring the lines between what’s AI and what’s not.
Capital Spending Spree to Meet Exploding Demand
Microsoft is not slowing down on infrastructure. It spent $21.4 billion in capital expenditures this quarter, opening new data centers in 10 countries and pouring investment into faster, more efficient AI models. They’re doubling model capabilities every six months, reducing GPU deployment times by 20%, and halving the cost per token. Still, demand is growing faster than capacity, and Microsoft expects tight AI supply conditions beyond June.
The AI Factory Is Open for Business
At the heart of Microsoft’s AI strategy is Foundry, their AI app and agent factory, now used by over 70,000 organizations. It processed over 100 trillion tokens this quarter (up 5x year-over-year). Microsoft also rolled out support for the latest models from OpenAI, Meta, Cohere, and others. And new lightweight models like BitNet b1.58 can now run on CPUs, lowering the entry point for AI adoption.
Developers aren’t left out either. GitHub Copilot continues to grow, now with over 15 million users, and Copilot for Microsoft 365 is catching on fast with enterprise customers. Deal sizes are increasing, and the number of seats per deal is growing. Microsoft is also introducing specialized agents for roles like sales, customer service, and factory operations.
AI-Powered Everything: From Security to Gaming
Microsoft is embedding AI across its entire ecosystem:
- Security: Copilot agents are helping security teams handle tasks autonomously, using insights from 84 trillion daily threat signals.
- Healthcare: Dragon Copilot is already helping document nearly 9.5 million patient encounters.
- Retail & Operations: New AI agents are driving personalization and safety in physical environments.
- Consumer Tools: Bing, Edge, Windows, and the Copilot app are all getting AI upgrades.
- Gaming: A new Copilot for Gaming offers real-time in-game coaching.
Even LinkedIn is seeing more members using AI for upskilling and job searches. AI-powered coaching and the Hiring Assistant are streamlining the recruiting process.
What’s Next: Building the Developer Platform of the Future
Satya Nadella made it clear, AI is the next big platform shift, and it’s built on the infrastructure Microsoft already dominates. Whether it’s GPU acceleration, databases, or storage, the same stack powers everything from ChatGPT to custom enterprise apps.
At the upcoming Build conference, Microsoft plans to share more on how it’s building a unified AI platform for developers. The foundation is already strong: scale, tools, distribution, and demand are all aligned.
Bottom Line
Microsoft is not just riding the AI wave, it’s shaping it. With cloud and AI demand showing no signs of slowing, Microsoft’s focus on long-term infrastructure, enterprise tools, and developer platforms positions it as a leader in the most transformative tech shift in decades.