Microsoft Expects Gradual Growth from AI Services

Microsoft management acknowledged during its fiscal-fourth quarter earnings call that the contributions of artificial intelligence (AI) to the company’s revenue will be gradual and not immediate. CFO Amy Hood stated that growth from AI services will come as Azure AI scales and Copilots become widely available. The impact of AI on revenue will be weighted towards the second half of the 2024 fiscal year.
Despite the hype surrounding AI and the investments made by Microsoft, the stock did not experience an increase following the earnings call. Slowing Azure growth had a negative impact on shares, causing a 4% decline before the market opened on Wednesday.
Microsoft previously announced the pricing for its Copilot product, which is set to bring AI solutions to Microsoft 365 customers. However, during the earnings call, Microsoft management lowered expectations by emphasizing that while AI will be a growth driver, its impact will not be immediate.
CEO Satya Nadella highlighted several AI achievements for the company, such as more than 11,000 organizations using Azure Open AI service and over 27,000 organizations using Microsoft’s GitHub Copilot. However, investors seemed more concerned about what Microsoft did not address during the call.
When asked about the drop in Azure revenue growth, Microsoft management did not provide clear guidance. Nadella mentioned that the cloud migration is still in its early stages and that AI will drive new workloads, but did not specify how much revenue AI will contribute.
In the fiscal-year 2023, Microsoft’s revenue increased by 7%, the lowest annual growth rate since 2017. Some investors expressed disappointment over the lack of firm revenue guidance for the coming year, which may be perceived as a lack of commitment to potential revenue growth. However, analysts believe that Microsoft will be able to achieve high single-digit or low double-digit revenue growth as AI tailwinds emerge.