Microsoft’s AI Bet Shows Strong Early Returns as Enterprise Adoption Accelerates

Microsoft’s aggressive push into artificial intelligence (AI) is showing traction with enterprise customers, as the company reported growth in AI adoption across its product portfolio.

“All-up, we now have over 60,000 Azure AI customers, up nearly 60% year over year, and average spend per customer continues to grow,” CEO Satya Nadella told investors during Tuesday’s earnings call.

The company’s AI strategy spans from infrastructure to applications, with Azure serving as the foundation. “With Azure AI, we are building out the app server for the AI wave, providing access to the most diverse selection of models to meet customers’ unique cost, latency and design considerations,” Nadella said.

Enterprise adoption of Microsoft’s AI tools appears particularly strong in the developer space. “GitHub Copilot is by far the most widely adopted AI-powered developer tool,” Nadella said. “Just over two years since its general availability, more than 77,000 organizations — from BBVA, FedEx, and H&M, to Infosys and Paytm — have adopted Copilot, up 180% year over year.”

The company’s Microsoft 365 Copilot, an AI assistant for office workers, is also gaining momentum. “Copilot for Microsoft 365 is becoming a daily habit for knowledge workers, as it transforms work, workflow and work artifacts,” Nadella said. “The number of people who use Copilot daily at work nearly doubled quarter over quarter.”

Large enterprises are making significant commitments to the technology. “All-up, the number of customers with more than 10,000 seats more than doubled quarter over quarter, including Capital Group, Disney, Dow, Kyndryl, Novartis. And EY alone will deploy Copilot to 150,000 of its employees,” Nadella noted.

However, Microsoft acknowledged growing pains as it scales its AI infrastructure. CFO Amy Hood addressed the challenge on the call: “We are constrained on AI capacity. And because of that, actually, we … have signed up with third parties to help us as we are behind with some leases on AI capacity.”

To meet growing demand, Microsoft is making substantial infrastructure investments. “Cloud- and AI-related spend represents nearly all of total capital expenditures,” Hood explained. “Within that, roughly half is for infrastructure needs, where we continue to build and lease data centers that will support monetization over the next 15 years and beyond. The remaining cloud- and AI-related spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals.”

The company’s approach to AI infrastructure differs from its earlier cloud buildout. “When we did this last transition, the first transition to the cloud, which seems a long time ago sometimes, it rolled out quite differently. We rolled out more geo by geo. And this one, because we have demand on a global basis, we are doing it on a global basis,” Hood said.

Microsoft’s AI strategy extends beyond office productivity to industry-specific solutions. In healthcare, “More than 400 healthcare organizations — including Community Health Network, Intermountain, Northwestern Memorial Healthcare, and Ohio State University Wexner Medical Center — have purchased DAX Copilot to date, up over 40% quarter over quarter,” Nadella reported.

The company is also seeing strong adoption of its AI development tools by business users. “To date, over 480,000 organizations have used AI-powered capabilities in Power Platform, up 45% quarter over quarter,” Nadella said.

Looking ahead, Microsoft plans to continue scaling its AI infrastructure to meet demand. Hood noted that while there are current capacity constraints, particularly in the first half of the fiscal year, “in H2, we expect Azure growth to accelerate as our capital investments create an increase in available AI capacity to serve more of the growing demand.”

Nadella emphasized that the company’s AI strategy is grounded in customer demand and value creation: “We primarily start right now from the demand side. What I mean by that is, what’s the product shape of the product portfolio?” 

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