The Six Five team discusses Microsoft Q4FY24 earnings.
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Transcript:
Patrick Moorhead: Yeah, let’s jump in here. So listen, they cranked out a beat, beat, record bookings, cloud revenue, 21%. Azure up 29%, below investor expectations. They got hammered on the AI CapEx that they were investing in, but it’s like, they kind of did a Meta and maybe they didn’t do as well of a job doing the explanation. But I got to tell you, there’s so many great things came out on that call related to AI, right? Azure AI customers using data and analytics up 50%. 14,000 paid Microsoft Fabric customers. And by the way, don’t be confused. One of the biggest challenges out there with enterprise AI is getting your data estate and Microsoft Fabric goes across multiple types of data sets, multiple types of data location. The other thing that came out, and I think Satya refers to these as green shoots. Like you have a tree and then you see something new coming off of it that could turn into something big.
GitHub Copilot, 76,000 companies. Copilot inside of GitHub up 180% year-over-year. And I like the way that the company is kind of taking a certain, I want to call it internal case study, external case study for a product line, and talking about how the meaningful nature of what it does for AI. Copilot for productivity up 60%, quarter-over-quarter. And huge, huge companies like Capital Group, Disney, DOW, EY says they’re going to bring Copilot to 150,000 of its employees. So listen, Microsoft really is in the catbird seat as it relates to enterprise AI, and I still think they have opportunity on consumer AI. They made the early bet with OpenAI, and it is interesting that OpenAI is now, I forget, it was the 8K or the 10K, they listed OpenAI as a competitor. But that just makes sense. I mean, that’s the mature view of technology in this decade, which is a co-optician.
Microsoft needs to work like heck to give more meaning inside of Windows. If I look at what Apple teed up with Apple AI and how embedded it was into the operating system, it’s very impressive. By the way, Apple AI is also in the Mac and Microsoft just needs to keep plugging it away with case studies, customer case studies showing real payback from their tools. Final comment. I feel like Microsoft is getting serious for the first time on IAS. Traditionally, I mean since Azure’s foundation, it seemed to be PaaS and SaaS. And SaaS is obviously stuff like Microsoft 65, D65, stuff like that. But I feel like the company is for the first time, and they projected this for the last six months, is they’re going toe to toe with AWS on generative AI IAS.
Daniel Newman: So they’ve beaten every category except one. And it was the only one that anybody really seemed to care about this quarter, which was the cloud number. And by the way, they didn’t miss by a lot. It was 29%. I think there was a target of 30, 30 and a half percent. And so that was the really sticking point. The stock fell precipitously after they announced, but then it came back as Satya talked more. I think you hit a really good point on the 76 or so thousand in GitHub. What that says to me is there’s a fundamental shift in how software is going to be developed going forward. And that’s meaningful. That’s meaningful in terms of how companies are going to build software and how they’re going to hire. So as we go into this job deflation period of time and the increase in unemployment, that’s an area where we were sort of told along the way it was going to be guaranteed. And it may not in fact be, not to say we won’t need keep developers, we just may not need as many developers.
I think it was 60,000 Azure, people building in Azure AI was another number I thought that was really important. I think the market this quarter has been, there’s been two big themes this quarter, CapEx spend and value out of AI. So companies are spending a ton. So this Microsoft number and the Amazon number and the Meta number, everybody was really, really looking hard and deep at CapEx spend. Funny Zuck, Meta, another earnings we didn’t even talk about here. We didn’t really talk about Apple or Meta, both doing better. Apple’s actually up in a crazy day today. But Zuck actually came pretty much straight out and just said, we’re going to be spending more. We just can’t get behind. And the market loved it. I mean, they did have a great beat and a raise and their advertising and core business are super stable.
Patrick Moorhead: Yeah, what was the difference there? Why was the reaction different, you think?
Daniel Newman: Well, I think one is they build their product for their own product. So if you look at the difference of all this CapEx investment in these cloud providers that are building product to enable others versus Meta who’s building AI to enable itself, it also seems to have the ability to do a lot of it on its own. It seems to be doing it somewhat efficiently. And of course their margins are incredible. Their growth and their margins and their EPS, I mean, look at their EPS, it’s like over five bucks a share, if I recall. Playing this by memory, I mean they’re just delivering. So this is not Meta Labs. This is not a bet on something they don’t believe in. AI is going to be foundational to that company long-term. So he said it, he came out, he was explained it. People appreciated it. I think Satya was able to ease the market the same way through his comments on the earnings call.
But people just, it’s like they’re in this tug of war, spend, don’t spend. I came out and said, look, this is not cyclical. This is exponential. The ingestion slash digestion slash gestation period of AI is not finite. It’s not fully understood. We don’t know when value is going to be realized by every company. And sometimes you have to build factories. It certainly isn’t building a new fab, like what Intel is trying to do. I think there’s a lot of reasons to be more bullish, but record results, record outcomes, growth, 29%, which by the way was substantially bigger than Amazon’s growth. So both Google and Microsoft continue to gain share on AWS despite law of large numbers. But that’s meaningful too. So Pat, overall, I mean, it was a really good print. I just don’t see, but the markets, like I said earlier, the market sucks. The market sucks, and so the volatility is skyrocketing.
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.
