Benzinga on $MSFT (Oct 28, 2026)

Microsoft cloud revenue surpassed $63 billion with growth accelerating to 30% year-over-year.

In closing, we are off to a strong start to FY27 with accelerated growth across the Microsoft cloud. Product improvements along with efficiency gains across our data center infrastructure and our firstparty apps and agents are increasing the value and improving the outcomes we deliver to our customers.

Delivering that value to our customers positions us for durable long-term growth.

Can I ask um as incremental AI capacity comes online, what do you see as likely to be the more important driver of returns over the next few years? Improving utilization and unit costs within Azure or your ability to monetize more layers of each workload across fabric foundry and copilot.

I'm wondering if you could unpack what I thought was uh one of the key metrics from this call and that is the guidance for Azure growth of 49 to 50% constant currency in December.

I can imagine there's a number of variables. The capacity you're putting out, the allocation to uh third party customers, probably open AI strength, but perhaps you could comment a little bit on what some of the key drivers are given how good that number seems at least to me.

in Q1 uh I would say the engineering teams have really delivered uh very very good work uh in terms of improving efficiency at the platform layer. That is not just a statement around the efficiency um of of GPUs.

It's a statement around the efficiency of every layer. how the app utilizes the platform and how Foundry utilizes the platform as well as the Azure platform itself.

um those efficiencies um you know they're sort of ground out every week and you have good ideas a lot work some don't and you stay at it so they're not maybe as predictable in terms of how much impact will get in quarter Q1 they did a very good job and you saw some of that result in us being able uh to put more allocation into foundry in the quarter

Secondly, uh and you mentioned it, uh token pricing will create a little bit of variability. We had higher token pricing than we expected in the quarter. Um listen, high quality models that we're able to take advantage of um and see good margins on do benefit us in the quarter. Uh that did happen in Q1.

So, in Q2, uh, we've got those efficiency grains, which is great, and those will continue into Q2. um we need to find some more uh which we're counting on uh enable to get to that um guidance that I gave because I have faith in the team's work in Q1 uh continuing into Q2 but we also need that work uh to be able to help us a little bit because we had some supply we were counting on Q2 move out into H2

I'd like to get a sense on the drivers of the AI strength in Azure being from enterprise versus digitally native in general um or AI native um with inferencing starting to RAM and Microsoft the go-to for enterprises

how should we think Amy about the mix of enterprise customer workloads within overall workloads at this point and Satia with the strong growth of the Azure AI platform offering Can you give us color on what's driving that?

the breadth the quality their ability oh by the way the multimodel nature of it right they look they start with a frontier model many of them uh in fact the uni liver one they just dropped an MAI model trained using our traces.

So even the degree of sophistication of what I think of as model optimization, workload optimization, token optimization uh was just great to see.

So the breath is starting finally does feel like the enterprise workloads they feel like to me, you know, like the database business, you know, applications enterprises built in the past that I grew up with are happening now when it comes to AI.

And in fact, if anything, some of the the, you know, uh, the the shiny object stuff is waning, right? Which is it's not about the next big thing. They're really more about, wow, can I build a system?

Can I own the the weights? Can I manage my costs? Can I have reliability? What about security?

And so, in that sense, the enterprise breath motion is starting. But like everything else, the enterprise stuff is not like a quarter over quarter. It's a you know a decadel long thing and that's what I've been waiting for.

Uh as opposed to like four customers who buy a lot of capacity from you and you can show a few quarters of growth and that's not a business as far as I'm concerned. So I want the breath. We are well positioned on the breath.

Uh and and we have you know large customers who want to buy from us and we're open for business with it. And um as long as the pricing is right, we may sell them some. Uh if not, uh we will be patient about building the breath business.

I want to stay on this topic of breadth because you had a comment in the prepared remarks talking about how MEI can now be comparable to leading models within 3 to six months of their release.

At the same time, you have OpenAI at 11% of revenue in the quarter. So maybe just take a step back and give us your latest thinking on how you think token mix and token value is going to evolve between the frontier Mai and maybe what some of your more sophisticated enterprise customers are doing from a proprietary AI strategy standpoint.

We saw that with some of the OpenAI models uh in the last quarter they were fantastic models and we're obviously very thrilled about the progress OpenAI has made uh with Astra and also what's to come uh and I thought we saw some good demand on that.

Um then the next thing people do is hey can I actually put multiple of the frontier models um because these got these have very different prices. In fact, this morning artificial analysis had the you know what I think is the real benchmark which is um the coding agents uh using our fusion and I think we were number two or number three there uh which is awesome to see right which is uh you can now get frontier performance 45% faster 75% cheaper like why who would want to not take that right

which is like if you're a coding agent user you want in fact anthropic and open AI by the way to compete eat for your workload, not like once a quarter, but for every task. Uh, and that to me is what the value of these routers and auto uh fusion uh stuff routing does and we're very excited about it.

And then the last thing is another important one. A lot of customers are saying, "Hey, look, take the uni level one, right? It's their system. they they will ultimately take even the traces after having done even a bunch with frontier models and they just want to train their own model.

Uh so it can be open weights or in this case it was MAI model."

Um and then depending on pricing depending on the need of the customer they will exercise it and there's a temporality to it. It's never like oh I start one place and that's where I stop right it's like I may start at the frontier I may go to an open weight I may go to an MI model I may go back to the frontier for the next drop for a few months come out like that's how I think that how dynamic these workloads are

and that's where when we think about foundry or when we think about fabric or when we think about co-pilot and get a co-pilot we really want to build a model system that delivers customers value continuously versus you know get you know them being stuck in any one thing.

Good to see uh as you're approaching 50%, uh you have another line item approaching 50% and that's your operating margin. Uh I think many ask you know how can you sustain this level of growth with a 50 on the top and a 50 on the bottom?

maybe you can discuss the operational improvements you you continue to put forward to to maintain that that high level on the bottom line.

Um let me first say uh the the best solution here is revenue growth. Um and so I would say I tend to start and focus there even though I think many people seem to think I start at the bottom of the P&L and work up.

Uh the right answer is you always start at the top of the P&L and work down.

And so what we've been focused on, and I think really it's almost inherent in all of the commentary, is we change segments because we're changing how we deliver product and services to customers.

We're changing it because we're delivering new and different products with a lot a lot of value in them. And those products are far more integrated than they were before.

I think when you see that revenue accelerate um at the top line, of course it does in a pretty healthy way contribute to positive margin and part of positive margin dollars which I think I need people to also focus on.

Um the second piece is um there's real focus on efficiency because efficiency when we say the word I think people believe it's cost related. The outcome is cross related but the real benefit of efficiency is stability.

It's security. It's reliability. It's that it delivers the highest quality unit at the lowest possible cost. And so it's operational excellence.

And so I think when you think about you can deliver product excellence which is what we're really focused on. I think we did a very good job on product quality uh in the past quarter which I think uh teams should be proud of in lots of places.

I think then you have this sort of operational focus on improvement and then it is a real focus um in terms of operating expense to make sure it's going toward building the new thing or providing security and quality and I think that's we've made a I think a very active choice to be really focused on those two things especially in this environment and how important it is

And I think when you do those things and you happen to be in a good market with breadth and breadth in customers and a global business, we've seen a good result. Um, this quarter in particular, you know, when you're delivering a lot of efficiency gains in a quarter, uh, and you can deliver revenue growth without spending additional cost, you of course see a benefit, which we did.

But I feel good about what's behind that number, which is, I think, a a focus on the right levers.

When you all shifted GitHub from a per se model to a uh a consumption model, it unlocked a ton of revenue growth for y'all. As you think about the tools in place now unlock on the consumption side for the core M365 customer, do you think the unlocks as fast and without sales effort or is it going to take a you know a fair amount of effort to get those meters spinning?

I think on the on the coding side um it will be faster just because I think uh people are used to paying um on this pay go as the sort of the general market uh and how it works and if anything hopefully you know some of the things that we announced even at GitHub universe today with fusion uh are a more attractive way right because you even if you think about it right you buy a bunch of credits and you want to use those credits most efficiently.

That's the promise of GitHub uh copilot fusion. Um so we are very optimistic about making progress on that.

Uh and then when it comes to co-pilot itself right we are trying to make sure that uh we in some sense are driving more and more value into the subscription uh with every model drop and essentially consolidating the frontier gains for broad deployment and in many instances as my remark said it funds this right as the thing that you want to have standard issue across the board and at the same time you have uh uh your uh pay as you go or consumption meters uh for places where you need it.

Um and so uh so both of those options are open and I think that's why uh the sec you know in with co-pilot as Amy referenced which is we're we're trying to make sure that customers understand both options they're able to use the almost the two options in the optimal way that benefits them. uh we don't want them to over buy one thing and then feel like they're token maxing because that doesn't serve anybody's purpose.

Uh we want to make sure that they understand the value of the subscription um and how it is a continually improving value. it's not even static and at the same time you can exercise this uh consumption meter and so that that's a little bit of the degree of sophistication in both in our sales motions even a customer's understanding that's I think coming together uh we feel very good about the progress but a lot more to do

and I think I would say it's also why um we've made the investment into the frontier co company here coupled with changes in our sales motion which I talked a little bit about Um you know we need both of those things uh to make sure customers are because what I think Sak is saying we want them to utilize both the co-pilot license to its fullest and understand when the consumption meter is delivering value to them. uh the investment in the FDE organization or the frontier uh core co- as well as new motions within our modern uh work in Microsoft 365 sales teams um are both meant to do that and I think to Safi's point it will it will be a slower move uh outside of coding uh but I also still think uh we're still seeing encouraging signs and uh and I I'm I'm feel positive about that.

You said in the prepared remarks that you will approach uh raising capital if need be in the future. Can you discuss your strategy around it between debt and equity and other sources?

Um how do you intend to raise capital if need be?

Uh and we did not disclose to answer your direct question update on the co-pilot number this quarter. We talked about momentum in uh revenue and usage.