Microsoft’s latest quarterly report reveals a strong push towards better AI efficiency, highlighted by CEO Satya Nadella’s comments. The cloud business brought in $69.6 billion for the quarter ending December 31, 2024. Nadella mentioned that Microsoft Cloud crossed the $40 billion revenue mark for the first time, marking a 21% increase from last year. He pointed out that companies are moving beyond initial experiments with AI to widespread implementation to maximize ROI, with Microsoft’s AI business now generating an annual run rate of $13 billion, a staggering 175% increase year-over-year.
During the earnings call, Nadella discussed the ongoing challenge for tech giants in balancing the acquisition of the latest AI-optimized hardware with the rise of new, more efficient AI models that don’t require cutting-edge hardware. He advised caution in purchasing, referencing Moore’s Law and the continual performance improvements that come with yearly updates. He stressed the need for a balanced approach to modernizing infrastructure while meeting demand for AI solutions.
Currently, Microsoft is investing heavily in AI acceleration hardware, impacting profit margins. CFO Amy Hood noted that while scaling AI infrastructure is essential, it hasn’t led to significant growth in their installed base. She anticipated only moderate growth in renewals for E5 and M365 Copilot subscriptions, largely due to the already large existing customer base.
When asked about DeepSeek, a competitor raising eyebrows in the AI arena, Nadella acknowledged its potential innovations, particularly in cost reduction for both training and running inference workloads. He emphasized that launching an expensive AI model won’t create demand and that optimizing costs is key for broad adoption.
Nadella explained that lower token prices coupled with more efficient models like DeepSeek will also reduce inference computing costs, making them more accessible. This accessibility can lead to an increase in app development. He painted a picture where by early 2025, you might run models on a PC that once needed significant cloud resources.
He believes that advancements like DeepSeek could make AI ubiquitous, presenting a significant opportunity for Microsoft. Nadella expressed optimism, judging that for a cloud provider and PC platform provider like Microsoft, these developments bode well for future growth. He reiterated that as AI becomes more efficient and accessible, demand will soar.