The Six Five team discusses Microsoft Q3/24 earnings.
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Transcript:
Patrick Moorhead: Let’s move to the next topic. I’m going to call my own number here and that is Microsoft. Dan, where do you start on this one? They absolutely crushed it. It reminded me a lot of last quarter, which was more of the awesomeness, but given all the reasons we talked about the confluence of issues, they had to crush it and they absolutely did, but what a lot of people focused on was that Azure number. And what I’m going to focus on is not the growth, which was good, but 40% of Microsoft’s revenue is Azure. And I had some people try to debate with me, “Oh, well, Surface is in there.” It’s like, that is such a minute spec, it’s not even funny. Surface grew 6%, and the other thing is scale. We’re looking at $100 billion a year scale company. That is literally the size of some of the biggest tech companies on the planet, infrastructure companies out there.
And I’ve worked with Microsoft almost 35 years and sometimes it’s easy to forget, they were the shrink wrap software company out there. Hey, it wasn’t all rosy. Personal computing not only missed the guide, it declined 19%. These are PCs, this is Windows, this is gaming. Watch this space. The AI PC market hasn’t really kicked off. Microsoft does not yet have an AI enabled operating system, but Pavan made some comments at a speaking engagement when I was in CES, and by the way, Pavan runs Windows and Surface, and he basically said, “We are going to change the underlying operating system to better take advantage of generative AI. And then if you read the cookie crumbs, even from Satya, the New York event that Six Five Media was at, and he even laid the cookie crumbs out there, I’m hoping we hear more about build that could be the growth catalyst, I believe it will, for the personal computing segment.
Final comments here, and this has been happening for almost a year. I like to go in and count the times that Satya or Amy says they took share and I think it was 22 times. They said, “We took market share across Dynamics 365, Teams Phone, Edge, and US Bing.” Pretty darn impressive. Now, how about Azure? I’d like to know if they believe that they gained market share in Azure. We don’t know yet, but I am kind of reading the tea leaves and I think that they think that they did.
Daniel Newman: Well, look, taking share in all those different areas is really important. Of course, share is a little bit retrospective to how much has the market grown and how much market, especially with AI, which there’s some uncertainty to how much AI is creating in growth. The company did come out after… I didn’t read in the initial report, but then I think it was mentioned on the call itself where Amy Hood mentioned that 7% of the growth was related to AI for their Azure number, so-
Patrick Moorhead: It was 8% last quarter.
Daniel Newman: No, it was six. So, it was actually a little better, so it went up. I think that was something I was worried about, because I didn’t see it initially and I was wondering if AI had actually stalled as an impact. So, it is making a bigger impact, Pat, what’s also interesting though is the day before when Meta had missed its guide just slightly, it absolutely fell off a cliff. Did you notice that Microsoft also missed its guide slightly and yet it still went up?
Now, that also just goes to show kind of the effect of some better performer around them with Google Ad, I think the overall sentiment, not to mention the market, was just looking for good news. You remember, market sold off a set down 700 points yesterday at its peak, it was a bad, bad day for people with a 401(k). Now having said that, even though the guide was a little low, they’re pushing for their belief they’re going to hit higher margins and therefore they would still end up hitting their EPS number, which I think was part of the reason everyone could shrug it off.
But Pat, the company showed strength in Azure. I think with constant currency was over 30%, which is again, I always hate bouncing between the constant and non-constant, because it just creates… I’m not a calculus major, but I like to talk about the calculus as often as I can. Now the expenditures, big time tied to the NVIDIA spend, and that by the way is a difference with Google and Microsoft is while Microsoft is starting the process of building its own AI accelerator, Google is much, much further along in that process and is doing as, Pat, both of you and I have tweeted about very popularly, they train their entire Gemini model on their own hardware, which is a different cap expenditure requirement.
Now, I also thought it really deserved a call-out and you said this, Pat, but Dynamics, what a great number. When they’re talking about taking share, they have to be talking about share from Salesforce.
Patrick Moorhead: I don’t know, it could be HubSpot.
Daniel Newman: Maybe I’m thinking more… That’s a possibility, but I think they’re talking about Salesforce. I think they might be talking about Oracle and maybe SAP because you’re talking about ERP and you’re talking about Dynamics, you’re talking about CRM. Those are the two areas, and of course they’ve got some specialties in supply chain, financial planning analysis tools, but Pat, that was very popular. The other thing that was really, really strong was the amount of GitHub Copilot subscriptions. They’re blowing everyone else out of the water on the developer side. It’s not even close. It’s like I think their paid subscription to GitHub code was like three times what AWS’s CodeWhisperer… I think it’s called CodeWhisperer is.
And by the way, that’s a really robust product with a lot of users. So, it’s not like bad, good. It’s like good, really good is what’s going on right now. Developers are turning to these tools though, Pat. So, good stuff overall from Microsoft. They had the second-best earnings yesterday.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
