Microsoft’s AI Business Surges, Set to Hit $10 Billion Milestone

Microsoft’s artificial intelligence (AI) initiatives are delivering unprecedented growth, with the company announcing its AI business is on track to surpass $10 billion in annual revenue run rate next quarter, marking the fastest acceleration to that milestone in the company’s history.

“AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process, helping customers drive new growth and operating leverage,” CEO Satya Nadella told analysts during the company’s fiscal first-quarter earnings call Wednesday (Oct. 30).

The tech giant said its AI momentum is evident across its product portfolio, with Azure OpenAI Service usage more than doubling over the past six months. Major enterprises are rapidly adopting Microsoft’s AI tools, with nearly 70% of Fortune 500 companies using Microsoft 365 Copilot, the company’s AI-powered workplace assistant.

Supply constraints remain a challenge as Microsoft works to meet surging demand for AI computing resources. “Demand continues to be higher than our available capacity,” said Amy Hood, Microsoft’s chief financial officer, noting that some AI capacity expected for the second quarter has shifted to the latter half of the fiscal year.

The company is aggressively expanding its AI infrastructure globally, announcing new cloud and AI investments in Brazil, Italy, Mexico and Sweden. Microsoft is also diversifying its AI computing capabilities, offering “the broader selection of AI accelerators, including our first-party accelerator, Maya 100, as well as the latest GPUs from AMD and Nvidia,” Nadella said.

Microsoft’s partnership with OpenAI continues to yield significant returns. “We have an economic interest in a company that has grown significantly in value, and we have built differentiated IP and are driving revenue momentum,” Nadella noted. According to Hood, the company has invested $13 billion in OpenAI to date.

Early enterprise adoption shows promising productivity gains. Nadella cited Vodafone as an example, which “will roll out Microsoft 365 Copilot to 68,000 employees after a trial showed that, on average, they saved three hours per person per week.”

The company is also seeing strong traction in specialized AI applications. Nadella highlighted that DAX Copilot, Microsoft’s AI assistant for healthcare, is “now documenting over 1.3 million physician-patient encounters each month at over 500 healthcare organizations.”

Despite the rapid growth, Microsoft faces challenges in scaling its AI infrastructure. “DCs [data centers] don’t get built overnight. So there is DC, there is power, and so that’s sort of been the short term constraint,” Nadella explained. However, he expressed confidence that “going into the second half of even this fiscal year, that some of that supply demand will match up.”

The company’s AI-driven growth is part of a broader strong performance, with Microsoft Cloud revenue reaching $38.9 billion in the quarter, up 22% year over year. Microsoft shares closed up following the earnings announcement, reflecting investor confidence in the company’s AI strategy and execution.