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Microsoft guides Azure growth of 49% to 50% as demand outstrips supply; capex to top $50 billion

Microsoft's cloud business accelerated in the September quarter, but capital spending, delayed third-party capacity and a weak Windows OEM market shaped the outlook.

Microsoft expects Azure revenue to grow 49% to 50% in constant currency in its fiscal second quarter, CFO Amy Hood said on the company's earnings call, adding that "customer demand continues to exceed available supply." Hood said capital expenditures should exceed $50 billion next quarter, bringing calendar-year spending to approximately $170 billion, after $45.2 billion in the September quarter, which she said was held down by delayed third-party capacity deliveries. First-quarter revenue was $92.3 billion, up 19%, and earnings per share were $4.89, up 18%.

Cloud growth accelerates

Hood said Microsoft Cloud revenue was $63.9 billion, with growth accelerating to 30%, or 31% in constant currency. Azure revenue rose 48%, ahead of expectations, even with the capacity delays. She said Foundry revenue more than tripled year over year, helped by efficiency gains across the GPU fleet and higher revenue per token. Engineering work also let Microsoft identify and monetize underutilized CPU capacity, she said.

Commercial remaining performance obligation grew 73% to $677 billion, with roughly 30% to be recognized in the next 12 months, Hood said. Commercial bookings fell 12%, or 11% in constant currency, because of large Azure commitments in the prior year. Hood said the timing of such commitments will cause "material volatility" in bookings.

Operating income rose 21%, and the operating margin was 50%. Cash flow from operations was $58 billion, up 29%, while free cash flow was $18.6 billion. Microsoft returned $10.2 billion to shareholders.

Capex, financing and capacity

Hood said roughly three-fourths of capex went to short-lived assets, primarily CPUs and GPUs, including higher memory and storage costs. She said spending is expected to accelerate in the second half of the fiscal year as delayed third-party deliveries shift into that period. Asked about funding, Hood said Microsoft will "access additional sources of funding when we believe it is attractive to do so," citing leasing and debt markets as options, and said Microsoft expects to remain free cash flow positive in fiscal 2027.

CEO Satya Nadella said Microsoft added 24 new data centers across five continents in the quarter and cut capacity lead times by about 20% for new GB300 systems in its biggest regions. He said Microsoft has docked its first Nvidia Vera Rubin GPUs and that its Maia 200 chip is delivering up to 1.7 times more tokens per watt.

Weak spots: Windows, M365 sales, bookings

Hood said Windows OEM revenue was below expectations, citing inventory drawdowns, weaker PC demand and a prior-year boost from Windows 10 end of support, with inventory levels still elevated. She guided Windows OEM and devices revenue to decline in the mid-30s percent range next quarter. Devices and consumer revenue was $15.5 billion, down 3%.

In Microsoft 365 commercial cloud, revenue grew 18% (19% in constant currency, adjusted for the prior-year comparable), helped by GitHub Copilot, while Hood cited "weaker sales execution" in E3 and standalone SKUs. Paid commercial seats grew 5%. Hood said E7 has reached millions of paid seats, and that Microsoft did not update its Copilot seat number this quarter.

Second-quarter guidance

Hood guided total revenue to $96 billion to $97.1 billion, up 18% to 19%. She projected Microsoft Cloud gross margin of roughly 65%, down year over year, and an effective tax rate of about 20%. Costs include an estimate for a recently announced employee voluntary exit offer. Operating margins should be down slightly year over year, she said.

On the call, Nadella said enterprise AI use is broadening, citing deployments at customers including Rolls-Royce and Raiffeisen Bank International. He said Microsoft wants breadth rather than reliance on a few large buyers, and a Goldman Sachs analyst noted OpenAI accounted for 11% of revenue in the quarter.

Bulletins

MICROSOFT CEO: MICROSOFT CLOUD REVENUE SURPASSED $63 BILLION, GROWTH ACCELERATING TO 30% YOY

MICROSOFT CEO: COPILOT DAILY USERS UP NEARLY 50% QUARTER OVER QUARTER, OVER 5X YEAR OVER YEAR

MICROSOFT CEO: VOLKSWAGEN TO DEPLOY COPILOT TO MORE THAN 330,000 EMPLOYEES

MICROSOFT CEO: GITHUB AGENT-GENERATED PRS UP 6X OVER PAST SIX MONTHS, OVER A THIRD OF ALL PRS

MICROSOFT CEO: GITHUB ADVANCED SECURITY REVENUE UP OVER 50% YEAR OVER YEAR

MICROSOFT CEO: FOUNDRY HAS OVER 120,000 CUSTOMERS, REVENUE MORE THAN TRIPLING YEAR OVER YEAR

MICROSOFT CEO: HEALTH CARE AUTOMATED 30 MILLION PATIENT ENCOUNTERS IN QUARTER, UP 70% YOY

MICROSOFT CEO: 44,000 PAID FABRIC CUSTOMERS, UP MORE THAN 50% YEAR OVER YEAR

MICROSOFT CEO: MAI CYBER POWERS OVER 40% OF AGENTIC CODE SCANS AT 18% LOWER COST PER SCAN

MICROSOFT CEO: POSTGRESQL GROWTH ACCELERATED FOR FOURTH CONSECUTIVE QUARTER

MICROSOFT CEO: OVER 50 MILLION AGENTS IN REGISTRY, UP OVER 30% QUARTER OVER QUARTER

MICROSOFT CEO: NEARLY 60,000 CUSTOMERS ACCESSING MICROSOFT IQ CONTEXT, UP 25% QOQ

MICROSOFT CEO: PURVIEW AUDITED OVER 7.6 BILLION AGENT ACTIVITIES TO DATE, UP 5X QOQ

MICROSOFT CEO: ADDED 24 NEW DATA CENTERS ACROSS FIVE CONTINENTS THIS QUARTER

MICROSOFT CEO: MAIA 200 DELIVERING UP TO 1.7X MORE TOKENS PER WATT; MAIA 300 TO ADD 40% MORE

MICROSOFT CEO: LINKEDIN HAS MORE THAN 1.4 BILLION MEMBERS, FEED TIME SPENT UP 15% YOY

MICROSOFT CFO: Q1 REVENUE $92.3 BILLION, UP 19%; GROSS MARGIN PERCENTAGE 68%

MICROSOFT CFO: Q1 EPS $4.89, UP 18%; OPERATING INCOME UP 21%, OPERATING MARGIN 50%

MICROSOFT CFO: Q1 CAPEX $45.2 BILLION, ABOUT THREE-FOURTHS FOR SHORT-LIVED ASSETS

MICROSOFT CFO: CASH FLOW FROM OPS $58B, UP 29%; FREE CASH FLOW $18.6B; RETURNED $10.2B

MICROSOFT CFO: AZURE REVENUE UP 48%; CLOUD REVENUE $63.9B, UP 30%, 31% IN CONSTANT CURRENCY

MICROSOFT CFO: COMMERCIAL RPO UP 73% TO $677 BILLION; COMMERCIAL BOOKINGS DOWN 12%

MICROSOFT CFO: FOUNDRY REVENUE MORE THAN TRIPLED YOY; M365 COMMERCIAL CLOUD REV UP 18%

MICROSOFT CFO: PAID M365 COMMERCIAL SEATS GREW 5%; E7 ALREADY AT MILLIONS OF PAID SEATS

MICROSOFT CFO: M365 CONSUMER CLOUD REV UP 17%; PRODUCTIVITY & SERVER LICENSING DOWN 3%

MICROSOFT CFO: INDUSTRY SOLUTIONS CLOUD REV UP 10%; MICROSOFT CLOUD GROSS MARGIN 66%

MICROSOFT CFO: DEVICES & CONSUMER REV $15.5B, DOWN 3%; SEARCH & ADS EX TAC UP 12%

MICROSOFT CFO: Q2 REVENUE FROM AGENTS AND INFRA SEEN $80.1B-$80.7B, UP 24%-25%

MICROSOFT CFO: Q2 AZURE GROWTH SEEN 49%-50% CC; M365 COMMERCIAL CLOUD ABOUT 19% CC

MICROSOFT CFO: Q2 MICROSOFT CLOUD GROSS MARGIN SEEN ROUGHLY 65%, DOWN YOY ON AZURE MIX

MICROSOFT CFO: Q2 DEVICES & CONSUMER REV SEEN $15.9B-$16.4B; WINDOWS OEM DOWN MID-30S%

MICROSOFT CFO: Q2 TOTAL REVENUE SEEN $96B-$97.1B, UP 18%-19%; COGS $32.7B-$32.9B

MICROSOFT CFO: Q2 OPEX SEEN $18.5B-$18.6B, UP 9%; OTHER INCOME/EXPENSE ABOUT -$300M

MICROSOFT CFO: Q2 CAPEX SEEN OVER $50B; CALENDAR 2026 CAPEX ABOUT $170B

MICROSOFT CFO: Q2 OPERATING MARGIN SEEN DOWN SLIGHTLY YOY; Q2 TAX RATE ABOUT 20%

MICROSOFT CFO: EXPECTS TO REMAIN FREE CASH FLOW POSITIVE IN FY 2027

MICROSOFT CFO: DEMAND STILL EXCEEDS SUPPLY; Q1 EFFICIENCY GAINS LET MORE CAPACITY GO TO FOUNDRY

MICROSOFT CFO: SOME Q2 SUPPLY EXPECTED IN Q2 MOVES OUT INTO H2; TOKEN PRICING A VARIABLE

MICROSOFT CEO: OPENAI AT 11% OF REVENUE IN QUARTER, RESPONDING TO ANALYST

MICROSOFT CEO: FRONTIER CODING PERFORMANCE NOW 45% FASTER, 75% CHEAPER VIA ROUTING

MICROSOFT CFO: HAS NOT YET TAPPED DEBT MARKETS; LEASING USED; DID NOT UPDATE COPILOT NUMBER

Posts (28)

Microsoft CEO Satya Nadella said Microsoft Cloud revenue "surpassed $63 billion with growth accelerating to 30% year over year" in the first quarter, on the company's earnings call.Said 5:33:41 PM ET · drafted 5:34:32 PM ET
Microsoft CEO Satya Nadella said the number of customers with more than 50,000 Copilot seats "increased over 8x year over year," speaking on the company's first-quarter earnings call.Said 5:34:56 PM ET · drafted 5:35:53 PM ET
Microsoft CEO Satya Nadella said the number of Copilot customers "actively consuming credits through usage based billing grew over 75% over the quarter."Said 5:36:09 PM ET · drafted 5:36:44 PM ET
Microsoft CEO Satya Nadella said credit consumption from agentic features on GitHub "has more than doubled since use usage based billing went into effect."Said 5:37:02 PM ET · drafted 5:37:48 PM ET
Microsoft CEO Satya Nadella said on the earnings call that GitHub Advanced Security revenue "increased over 50% year over year" as customers use its AI capabilities to scan repositories.Said 5:37:15 PM ET · drafted 5:38:49 PM ET
Microsoft CEO Satya Nadella said the company has over 120,000 Foundry customers, with "revenue more than tripling year over year," during Wednesday's earnings call.Said 5:39:15 PM ET · drafted 5:43:07 PM ET
Microsoft said accelerating demand led it to add "24 new data centers across five continents this quarter," according to the transcript of its first-quarter earnings call Wednesday.Said 5:44:42 PM ET · drafted 5:45:13 PM ET
Microsoft said its Maia 300 chip "will drive further gains delivering 40% more tokens per watt compared to the leading gpu based systems," CEO Satya Nadella said. Microsoft is also scaling Nvidia and AMD fleets.Said 5:45:46 PM ET · drafted 5:46:00 PM ET
Microsoft CEO Satya Nadella said Azure growth was "broad based across both enterprises and small and medium business segments and spanning both core cloud services and ai infrastructure."Said 5:46:02 PM ET · drafted 5:46:56 PM ET
Microsoft said agents including OpenAI Codex and Anthropic Claude are adopting its execution containers for Windows, and that "customers like meta are starting to deploy it across their enterprise environments."Said 5:47:26 PM ET · drafted 5:47:47 PM ET
Microsoft CFO Amy Hood said first-quarter revenue was "$92.3 billion up 19%." She said operating income rose 21%, gross margin was 68% and EPS was $4.89.Said 5:48:43 PM ET · drafted 5:49:43 PM ET
Microsoft CFO Amy Hood: "Capital expenditures were $45.2 billion as some third party capacity deliveries we expected in q1 were delayed." She spoke on the company's earnings call Wednesday.Said 5:49:40 PM ET · drafted 5:50:45 PM ET
Microsoft CFO Amy Hood said Azure revenue was "ahead of expectations and increased 48% even with the three peak capacity delays noted earlier" in the quarter.Said 5:51:49 PM ET · drafted 5:53:54 PM ET
Microsoft said Windows OEM revenue "was below expectations and decreased 20" seven percent in the quarter, citing lapped Windows 10 end-of-support demand, inventory drawdowns and weaker PC market demand.Said 5:56:01 PM ET · drafted 5:56:42 PM ET
Microsoft CFO, on second-quarter outlook: "We expect revenue from agents and infra of 80.1% to $80.7 billion or growth of 24% to 25%."Said 5:57:06 PM ET · drafted 5:57:30 PM ET
Microsoft CFO said second-quarter total company revenue should be between "96 and usd 97.1 billion or growth of 18% to 19%."Said 6:00:27 PM ET · drafted 6:00:47 PM ET
Microsoft expects second-quarter capital spending to be "over $50 billion," the company said on its earnings call. Calendar-year spending is projected at about $170 billion.Said 6:01:25 PM ET · drafted 6:01:50 PM ET
Microsoft's CEO, asked where cloud margin leverage will come from, said "it's not gonna come from any one, it's gonna come from every one of them," adding that gains compound across products.Said 6:05:46 PM ET · drafted 6:06:43 PM ET
Microsoft on Azure growth: "The engineering teams have really delivered very very good work in terms of improving efficiency at the platform layer." The company said that let it put more allocation into Foundry in the quarter.Said 6:07:07 PM ET · drafted 6:08:10 PM ET
Microsoft CFO Amy Hood said Azure growth in the first quarter was helped by pricing. "We had higher token pricing than we expected in the quarter," she said. Hood added that demand still exceeds supply.Said 6:08:33 PM ET · drafted 6:09:30 PM ET
Microsoft CEO Satya Nadella said "the shiny object stuff is waning" in enterprise AI. He said customers want to build systems and own the weights. He cited Rolls-Royce and Raiffeisen Bank International.Said 6:13:18 PM ET · drafted 6:13:32 PM ET
Microsoft CEO Satya Nadella on selling AI capacity to large customers: "As long as the pricing is right we may sell them some if not we will be patient about building the breadth of this."Said 6:14:10 PM ET · drafted 6:14:54 PM ET
Microsoft CEO Satya Nadella said Microsoft's models ranked No. 2 or 3 on a coding-agent benchmark. "You can now get frontier performance 45% faster 75% cheaper," he said.Said 6:16:08 PM ET · drafted 6:16:24 PM ET
"The right answer is you always start at the top of the p and l and work down," Microsoft CFO Amy Hood said, responding to a Jefferies analyst's question on sustaining high margins. She said revenue growth is the best lever.Said 6:18:47 PM ET · drafted 6:20:28 PM ET
Microsoft CEO Satya Nadella said consumption-based pricing for coding tools should take hold faster: "On the coding side it will be faster just because I think people are used to paying on this pay go."Said 6:22:32 PM ET · drafted 6:24:12 PM ET
"We don't want them to overbuy one thing and then feel like they're token maxing because that doesn't serve anybody's purpose," Microsoft CEO Satya Nadella said of Copilot subscriptions and consumption meters.Said 6:24:06 PM ET · drafted 6:25:15 PM ET
"It will be a slower move outside of coding," Microsoft CFO Amy Hood said of getting Microsoft 365 customers onto consumption pricing. She said she is still seeing "encouraging signs."Said 6:25:17 PM ET · drafted 6:26:17 PM ET
Microsoft CFO Amy Hood said "we have a lot of flexibility in terms of our capacity to raise financing" and that the company hasn't yet tapped the debt markets, responding to a Bank of America analyst.Said 6:26:25 PM ET · drafted 6:28:54 PM ET

Transcript

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Britain's

a

and

welcome

to

the

Microsoft

physical

year

2027.

First

greetings and welcome to the microsoft fiscal year twenty twenty seven first

quarter

earnings

conference

quarter earnings conference call

call.

At the

same

time,

I'll

put

participants

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in

a

the

listen

only

at this time all participants are in a listen only mode

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A

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As

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as a reminder this conference is being recorded

it is

not

my

pleasure

to

introduce

John

Nielsen.

vice

president

and

that's

it is now my pleasure to introduce jonathan nielsen

vice president investor relations

real

the United

You

can

ask

off the

name

and think about

thank

you the

for

joining

us

good afternoon and thank you for joining us today

today.

On the

call

with

me,

our

I'll

stack you

in a

Nodella, chairman

and

she

she's

executive

on the call with me are satya nadella chairman and chief executive officer

officer.

And you

amy hood

Hood,

she

chief

financial

chief financial officer

officer.

Alice

Jola,

chief

accounting

officer.

and

Brian

DeFo,

deputy

alice jolla chief accounting officer and brian defoe

general

counsel

in

and

corporate

deputy general counsel and corporate secretary

secretary.

On

mean,

the

Microsoft

investor,

relations

website,

you

can

find

that

on the microsoft investor relations website

earnings

press

release

and

financial

summary

slide

deck.

which is in

intended

you can find our earnings press release and financial summary slide deck

to

supplement

our

prepare

or

them

marks

during

the

today's

call.

and

which is intended to supplement our prepared remarks during today's call

provide the

reconciliation

of

differences

between

gap

and

non-gap

financial

and provides the reconciliation of differences between gaap and non gaap financial measures

measures.

More

detailed,

out

outlooks

slides

when

will

be

a

available

on

the

Microsoft

investor

relations

more detailed outlook slides will be available

Nations

website.

when

we

provide

outlook

commentary

on

today's

on the microsoft investor relations website when we provide outlook commentary

on today's call

call.

On

this

call,

we

will

discuss

certain

non-gap

on this call we will discuss certain non gaap items

items.

The non-gaps

financial

measures

provided

should

not

be

considered

as

a

substitute

the non gaap financial measures provided should not be considered as a

substitute for

for

all

sleeper

to

the

measures

of

financial

formans per

for

pad in

the

code.

with

or superior to the measures of financial performance prepared in accordance with gaap

GAP.

They

are

included

as

a

digital

clarifying

items

to

A

aid

and Besses

they are included as additional clarifying items to aid investors in

in

further

on

the

understanding

the

company's

first

quarter

of

a

performance.

In

addition

to

the

impact,

these

further understanding the company's first quarter performance

items

and

events

have

on

the

financial

in addition to the impact these items and events have on the financial results

results.

World Gross

can

patterns

we

make

on

the

call

today.

relate

to

the

all growth comparisons we make on the call today

corresponding

period

of

last

year,

and

unless

otherwise

relate to the corresponding period of last year unless otherwise noted

noted.

We

will

were

all

also provide

gross

rates

in

Comston

currency

when

available.

we will also provide growth rates in constant currency when available

as a

the

framework

for

a

assessing

how

I

underline

business

to

performed.

excluding

me

the

as a framework for assessing how our underlying business performed

effect

of

foreign

currency

rates

rate

excluding the effect of foreign currency rate fluctuations

fluctuations.

Where

gross

rates

are

the

same

in

constant

currency,

We

will

refer to

the growth

rate

of

where growth rates are the same in constant currency we will refer to the growth rate only

only.

We

will

post

that

for

prepared

remark

to

our

website

in

immediately

we will post our prepared remarks

following

the

call.

And so

the

complete

transcript

is

to our website immediately following the call until the complete transcript is available

available.

Today's

call

is

being

webcast

live

and

today's call is being webcast live and recorded

recorded.

If

you

ask

a

question,

it

will

be

included

in

our

live

if you ask a question it will be included in our live transmission

life

transmission.

in the

trans

script and

in

any

future

use

of

the

in the transcript and in any future use of the recording

recording.

You

can

replay

the

you can replay the call

call

and

view

this

the

transcript

on the

Microsoft

Investor

Relations

and view the transcript on the microsoft investor relations website

website.

During

this

call,

we

will

be

making

fun of

forward

looking

during this call we will be making forward looking statements

statements,

which

are

have predictions

projects

or

other

statements

that

about

have

future

which are predictions projections or other statements about future events

events.

These

statements

are

based

on

current

expectations

and

in

a

assumptions that

the subject is a very good

to

these statements are based on current expectations and assumptions

risk

could

it

that are subject to risks and uncertainties

uncertainty.

And

sure is

results

could

materially

differ

because

of

fact

standed

the

discussed

in

today's

earning

actual results could materially differ because of factors

press

release in

the

comments,

made

during

this

home

conference

discussed in today's earnings press release in the comments made during this conference call

call.

and

in

a

the

risk

factor

section of

our

four

form

and in the risk factors section of our form ten ks

10K,

forms

10

and

other

reports

and

in

filings

with

the

a

security and

exchange

forms ten q and other reports and filings with the securities and exchange commission

Commission.

We

do

not

undertake

any

duty

to

update

any

form

forward

looking

we do not undertake any duty to

update any forward looking statements

statements.

And

with

that,

I'll

turn

tell you the

call

over

to

and with that i'll turn the call over to satya

Satya.

Thank you very

much,

Jonathan. It

is

was

a

fast

start

to

our

fiscal

thank you very much jonathan it was a fast start to our fiscal year

year.

Microsoft

Cloud.

revenue

so

past

63

billion

dollars

with

growth

accelerating

to

microsoft cloud revenue surpassed sixty three billion dollars with growth

30%

year

here

over

accelerating to thirty percent year over year

year.

here. We have

are

focused

on

three

things.

designing

AI

to

empower

people

and

we are focused on three things designing ai to empower people

surely

every

organization

has

so

sovereign

deal

over

its

own

learning.

and

building

ensuring every organization has sovereignty over its own learning

trust

with

controls that

ensure

agents

safety and

and building trust with controls that ensure agent safety and security

security.

Now,

let's

talk

about

how

we're

are

making

progress

on

those

goals as

we

build a

new

tech

now let's talk about how we are making progress on those goals as we build a new tech

stack.

starting

with

co-pilot.

We

announce

our

biggest

update

to

Copilot

stack starting with copilot we announced our biggest

today.

this

quarter

bringing

together

chat

co

co-work

update to copilot to date this quarter bringing together chat

autopilot.

and

code

into

one

to

unified

experience. It's

one

product

experience

co work autopilot and code into one unified experience it's one product experience

across

commercial

and

good

consumer and

comes

with

all

of

off his

built

in. We

think

of

across commercial and consumer and comes with all of office built in

co-pilot

as

the

new

OS

for

work.

Customers

are

we think of copilot as the new os for work

increasingly

taught

to

go

pilot

to

get rid

real

work

done.

Automated

customers are increasingly turning to copilot to get real work done

tasks

is

nearly

double

since

July.

Daily

uses

are

up

automated tasks has nearly doubled since july daily users are up

nearly

fifty

quarter of the

a

over

quarter.

and

over

five

X you

year

know

nearly fifty percent quarter over quarter

over

Wu

year.

Use

the

had a

faction

in

improved

nearly

and over 5x year over year user satisfaction improved nearly

20%.

quarter

over

quarter to

an

another

all

old

time

high.

And 90% of the

twenty percent quarter over quarter to another all time high

co-pilot

queries

use

all

auto

mode,

which

dynamically

and ninety percent of copilot queries use auto mode

runs

past

across

models

up

to

my

for

quality

which dynamically routes tasks across models optimizing for quality

speed,

and

cost.

These

improvements

are

translated

into

larger

speed and cost these improvements are

purchases.

The

number

of

customers

with

more

than

translating into larger purchases the number of

50,000

co-pilots

seats

increased

over

eight

year

over

customers with more than fifty thousand copilot seats increased over 8x

year,

including

Cap

gem

Jim and

I it

the

CL

tech.

It

actually

year over year including cap gemini hcl tech hitachi group

group

tourists for

finance

man show

and

you

UK

get

revenue

and

customs

department.

And

just

last

truist financial and uk revenue and customs department

week,

we

we'll

for

going

in

announced

plans

to

deploy code.

co-pilot

to

more

than

and just last week volkswagen announced

three

hundred and

thirty

thousand

employees, one of the

largest

plans to deploy co pilot to more than three hundred and thirty thousand employees one of the largest deployments

deployments

to

take in

Europe.

We

We're

also

seeing

strong

momentum

with

each

seven,

which

brings

to date in europe we're also seeing strong momentum with e7 which

together code.

co-pilot

E

and

entra an

agent

three

six

brings together copilot e5 entra and agent three sixty five

five.

That

Dowsons

are

of

a

customers

in

every

industry

are

put

purchased

the

sweet

to

thousands of customers in every industry have purchased the suite to date

date,

including

Amadeus,

black

Rock,

Fisher,

and New

South

sound

Wales

help

to

the

department

including amadeus blackrock fiserv and new

and

in

the

zice.

Our

business

model

is

expanding

from

purcy

seat

wales health department and zeiss our business model is

to

of

subscriptions

to

include

the

consumption,

it's

expanding

our

tam

and

expanding from per seat subscriptions to include consumption

our

art

expanding our tam and arpu

book?

The

subscription

brings

increasingly

capable

every

day

in

intelligence

to

every

the subscription brings increasingly capable everyday intelligence to

user.

Typically,

I

think

funds

this

can

consolidating

frontier.

and

every user typically it funds this consolidating

advances

for

everyone

across

the

organization.

And

as

Aegin's

stick

frontier advances for everyone across the organization

take

on

a

high

higher

value

work,

can

consumption

opens

up

business

and as agents take on higher value work consumption

funded

to demand.

with

spending

tied during

directly

to

opens up business funded demand with

the

value

of

these

agents

delivered.

spending tied directly to the value these agents deliver

The

number of co-pilot

customers

actively

consuming

credits

through

usage

based

the number of copilot customers actively consuming credits

billing

grew

all

over

the

75%.

over

the

quarter.

through usage based billing grew over seventy five percent over the quarter

When it

comes to

software

when it comes to software development

development,

all

me

major

coding

agents

have

shown

up

to

work

on

get

all major coding agents have shown up to work on github

Git

Agent

generated

pianos have

increased

six

at the

x

over

the

past

6

agent generated prs have increased six x

months

and

agents

now

are

open

more

than

a

third of

all

PRs

over the past six months and agents now open more than a third of all

on

the

prs on the platform

platform.

We are

very

hard

and

to

at

work

on

the

Reliant

as

a

genetic

activity

on

get

we are very hard at work on reliability as agentic activity on github

GitHub

source.

At GitHub,

you

know

never

this

morning,

we

shared

how

we

we're

are

expanding

source at github universe this morning we shared how we are

capacity

and

rebuilding

the

core

get

on

architecture

for

the

agentic

way.

expanding capacity and rebuilding the core git architecture for the agentic wave

Also,

it

you

universe

me and

announced

broader

availability

of

copilot

at

fusion,

which

is

also at university announced broad availability of copilot fusion

all

about

bringing

multiple

model

orchestra

to

software devices.

development. It

which is all about bringing multimodal orchestration to software development

delivers

frontiers.

level

quality

up

to

40%.

percent

faster

and

at

add

up

to

it delivers frontier level quality up to forty percent faster

77%

percent

lower

cost.

Credit

comes

for

from

me,

and add up to seventy seven percent lower cost

meantic

features

on

GitHub

has

more

than

double

since

you

credit consumption from agentic features on github has more than doubled since use

usage

based

billing

went

into

a

effect.

And we're

also

helping

developers

secure

their code.

and

usage based billing went into effect and we're also helping developers

turn it

the

eye

I

generated code.

into

high

quality

software.

Get

up

secure their code and turn ai generated code into high quality software

at

advanced

to

security

revenue

increased

over

50%

here

year

over

of

the year.

as

github advanced security revenue increased over fifty percent year over year as

customers,

use

it.

its AI

capabilities

to scan and

dire repos

and

fix

customers use its ai capabilities to scan entire repos and fix

vulnerabilities

in

real

time.

In

the

business

application

space,

we

are

vulnerabilities in real time in the business application space we are

extending

this

vision

of

co-pilot

as a

the new

OS for

work, bringing

the

extending this vision of copilot as the new os

business

logic and

capabilities

of

dynamics

three

for work bringing the business logic and capabilities of dynamics three sixty five

365

directly into

co-pilot and

helping

every

organization

stand

up

their

own

directly to copilot and helping every organization stand up their own infinite

infinite

sass

factory.

This

quarter

we

introduced

30

new

co-pilots

skills across the

saas factory this quarter we introduced thirty new copilot

dynamics

three six

skills across dynamics three sixty five

which

an

enables

customers

to

act

so see

CRM

and

many

the

ERP

capabilities due

directly

in

the

flow

of

which enables customers to access crm and erp capabilities directly in the

work.

In

recruiting,

more

than

10

million

LinkedIn

flow of work in recruiting more than

members,

use

our

LinkedIn

AI

power

job

search

daily

and

ten million linkedin members use our linkedin ai powered job

twenty five

thousand customers

are

using

our

agenda

hiring

search daily and twenty five thousand customers are using our agentic hiring solutions

solutions.

Recruiters,

using

use in hiring

a

assistant

are

or

finding

into

interview

quality

recruiters using hiring assistant are finding interview quality applicants

applicants.

thirty-three

three percent

faster

while

reviewing

83%

for

you

your

profiles to

find

thirty three percent faster while reviewing eighty three percent fewer profiles to find

qualified

match.

In

health

we

automated

30

million

patients

and

gown to

of

qualified match in health care we automated thirty million patient encounters

as

water

up

70

percent

year

over

or we

are

helping

the

initial

spend

less

this quarter up seventy percent year over year helping clinicians spend less

time

on

the

ministrative

to

of

work

and

more

time

with

patients.

Ken

provides

time on administrative work and more time with patients

including

advocate

health, mental

Mass

and

bring

them

more

C

into

ten providers including advocate health mass general brigham mercy

mountain

hell than

and

all

others

have

used

our

solutions

to

dock

him into

over

a

one

million

intermountain health and others have used our solutions to

in

encounters.

each

sends

the

beginning

of

the

a

calendar

over one million encounters each since the beginning of the calendar year

And in

signs,

our

FDA

teams

are

working

with

customers to

use

and in science our fda teams are working with customers to use

discovery

to

accelerate

scientific

progress.

A great

example

is

saying

go

by

which

discovery to accelerate scientific progress a great example is saying gobain

used

to

to

accelerate

the

development

or

of

low

carbon

construction that

which used discovery to accelerate the development of low carbon construction materials

materials.

Underneath,

our

first

part

party

a

genetic

experience

is

a

common

underneath our first party agentic experience is a common

platform

platform.

It's

starts

with

some

foundry,

which

is

becoming

a

increase

increasingly

important

driver

of

our

it starts with foundry which is becoming an increasingly important driver of our growth

growth.

Foundry

helps

organizations

be a

learning

loops

around the

in

that

business

foundry helps organizations build learning loops

context and

deploy

agents

safely

at

grounded in their business context and deploy agents

scale.

We

now

have

over a

hundred and

safely at scale we now have over one hundred

twenty thousand

foundry

customers

with the

revenue

more

than

tripling

year

twenty thousand foundry customers with revenue more than tripling year over year

over wee

up.

Foundry's

model

choice, and

feature

set

coupled

with

its

deep

integration

foundry's model choice and feature set coupled with its deep integration across

across

our

stack

is driving

different.

As a

roll in the

AI

directly

our stack is driving differentiation azure openai directly benefits

benefited

in the

last

quarter

with

big

advances in Open

OpenAI

models, and then

when you

couple

this

with

our

benefited in the last quarter with big advances in openai models and when you

model

choice

built

into

Foundry,

customers

are

able

to

build

couple this with our model choice built into foundry

solutions

optimizing

across

quality cost

and

customers are able to build solutions optimizing across quality cost and performance

performance.

In

fact,

the

number

of

customers

building

a

genetic

solutions

with

multiple

models

increased

in fact the number of customers building agentic solutions with multiple models increased

5x

you

year over

year.

and

revenue

from

open

source

models

on

foundry

increased

5x year over year and revenue from open source models on foundry increased 10x

ten

We

also

continue

to

make

rapid

progress

with

our

first

body

models.

we also continue to make rapid progress with our first party models

Our goal is

to

advance

the

cost

to

outcome

frontier.

which

means

delivering

our goal is to advance the cost to outcome

capabilities

is

comparable

to

leading

models

within

three

to

six

frontier which means delivering capabilities comparable to leading models within three to

months of

their

release and

a

fraction

of

the

training

cost.

Thereby

I

allowing

us

six months of their release at a fraction of the training cost

to

transfer

those

costs

benefits

to

customers.

And

you

see

this

thereby allowing us to transfer those cost benefits to customers

in

our

product

and you see this in our products today

today.

MAI

is

side burned

our

powers

over

40%

of

the

scans

and

in

our

regentic

M

MDASH code.

mai cyber now powers over forty percent of the scans in our agentik m dash

can.

at

18

percent

lower

cost

but

per

of

scan.

Am I

code scanner at eighteen percent lower cost per scan

transcribed is

the

most

accurate

and

cheapest

transcription

model in

the

world. So

mai transcribe is the most accurate and cheapest transcription model

boarding

Dragon

copy that's

multi

work

workflow

MAI

code

in the world supporting dragon co pilot's multilingual workflow

flash

is

three

million

users

in

GitHub code.

pilot at a

last

month

maia code flash has three million users in github copilot last month

alone.

helping

developers

get

more out of

their

AI

credits.

Microsoft

alone helping developers get more out of their ai credits

decision

One

is

our

new

model

for

structured

decision

making.

out

microsoft decision one is our new model for structured decision making

both

L

LLMs

and

all

other

decision

models in

and

they can

and

outperforming both llms and other decision models in latency and quality

quality.

Over

four

4,000

customers,

including

Atos

Group,

Equinor,

and

over four thousand customers including atos group equinor and rbi

RBI

have

already

used

it

in

the

first

month

since

it's

a

release.

And we

recently

have already used it in the first month since its release

completed

pre-training

MAI

based

tool

which

I'll

outperforms

other

open

and we recently completed pretraining mai based

rate

weight

models

we

tested

with

four

to

twelve

times

two which outperforms other open weight models we tested

greater

training

computer

fish

and

see

this

base

model

with four to 12x greater training compute efficiency

would

will

be

used

in

the

upcoming

MAI

models

across the

thinking code.

this base model will be used in the upcoming mai models across

and

cyber.

The only

models,

we

have

are

making

the

harness

thinking code and cyber beyond models

behind

our

own

co-pilot

pilot experience

of

available

to

we are making the harness behind our own copilot

customers

in front

Foundry.

It

gives

customers

a

experience available to customers in foundry it gives customers

Microsoft

managed

way

to

build

agents

that

reason

use

a microsoft managed way to build agents that reason use tools

trolls

complete

comp

plax

long

running

work

while it

preserving

the

choice

of

complete complex long running work while preserving their choice of model

model.

And I don't know

the

critical

layer

is

another critical layer is data

data.

We

now

have

44

paid

fabric

customers

up

more

than

we now have forty four thousand paid fabric customers

fifty

percent

year

here

over

or we

year.

We

are

bringing

foundry

and

fabric

up more than fifty percent year over year we are bringing foundry and

close

to

together so

you

can

build

your

own

agents

right

next

to

fabric closer together so you can build your own agents right next to data

data.

Over

nine

19,000

customers

now

use

phone

and

fabric as

they

over nineteen thousand customers now use foundry and

enterprise is

connected

and

operate

agents

over

real

time off

fabric as enterprises connect and operate agents over real time

operational

and the

in

and

that

unstructured

data.

Customers

are

also

operational analytical and unstructured data

rapidly

deploying

our

AI

up

to

mine's

data

bases

customers are also rapidly deploying our ai

including

Postgres,

C

quality,

CQL,

DB

be hyper

scale

optimized databases including postgresql sql db hyperscale

cosmos

D

DB to

give

agents

fast

secure

you're

access

to

the

data

and

context

that

they

cosmos db to give agents fast secure

need.

Postgres

will

grow

the

to accelerated

for

the

access to the data and context they need postgresql growth

full

comes

back

in the

quarter and

the

number

of

postgres

you could

CO

accelerated for the fourth consecutive quarter and the number of postgresql customers

customers

also

using

foundry

accelerated

to

ninety

percent here

or

we

here.

up.

also using foundry accelerated to ninety percent year over year

We

also

have

one

of

the

most

important

databases

for

any

we also have one of the most important databases

enterprise,

which

is

the

knowledge

on

under

underneath

Microsoft

three six

five

for any enterprise which is the knowledge underneath microsoft three six

spanning

people

that

the

relationships

are

documents

emails

meetings

five spanning people their relationships documents emails meetings chats

chats

projects

and

all

other

artifacts.

What

I

IQ

makes

this

punting

available

projects and other artifacts workiq makes this context available

to

every

agent

in

they

workload.

And with

Microsoft

I

IQ,

we

we're

bringing

together

what

to every agentic workload and with microsoft

work

IQ

fabric

IQ,

and

phone

IQ is a

iq we're bringing together workiq fabric iq and foundry iq as a unified

unit

context for a

egentic

systems.

Nearly

60

context for agentic systems

costs

are

accessing

context

across

nearly sixty thousand customers are accessing context

microsoft

IQ

up

25%.

quarter

roll

across microsoft iq up twenty five percent

quarter over quarter

over

a quarter.

As

end of

deploy

more

agents,

they

also

need

to

govern

them

at

as enterprises deploy more agents they also need to govern them at

scale.

But Agent

365,

we

provide

a

platform

for

AI

of

scale with agent three six five we provide a

observability

and

enabling

customers

to

manage

secure

and

platform for ai observability enabling customers to manage

optimize

the

performance

and

cost of

their

agents.

Over

50

million

secure and optimize the performance and cost of their agents

agents

and

are

now

in

the

registry

up

over 30

thirty

quarter

over fifty million agents are now in the registry up

of

over

quarter.

And

finally,

as

agents,

gain

greater

over thirty percent quarter over quarter and finally as agents gain greater

acts

access

to

enterprise

data

and

systems

securety

becomes even

more

access to enterprise data and systems security becomes even more critical

critical.

Our

approach

is

to

separate

in

intelligence

from

a

authority

and

force

our approach is to separate intelligence from authority

identity,

but

per

missions

monitoring

and

containment

enforcing identity permissions monitoring containment

outside

the

model

itself.

Last

week,

we

expanded

it

with

perception with

outside the model itself last week we

new

capabilities to

help

customers

secure

and

contain

a

expanded perception with new capabilities to help customers secure and contain

gentleman

inside

as

there's

including

expanded

agent

in discovery of

across

agentic insiders including expanded agent discovery

local and Tel

cloud environments

dynamic

to

missions

that

in

force

least

privilege

across local and cloud environments dynamic permissions that enforce least privileged

to

access

for

each

task.

and

continue

as

to

risk

a

assessment.

We

all are

for each task and continuous risk assessment

introduced

teens

or

of

guardian

agents

that

continuously

monitor

we also introduced teams of guardian agents

agent

activity to

help

prevent

unsafe

actions

that continuously monitor agent activity to help

before

they

are

coming.

And we're

are

seeing

in

colours the middle of the

fleet

prevent unsafe actions before they occur

on

perception

over

all

from

preview

customers

and we are seeing encouraging feedback on perception overall from preview

including

KPMG,

nationwide

building

society and

all

the

trust

customers including kpmg nationwide building society northern trust

fell

this.

More

broadly,

we

are

helping

customers

secure

and

govern

salantis more broadly we are helping customers

AI

use

a

across the

secure and govern ai use across the enterprise

enterprise.

Customers

have

used

Microsoft

Povy

to

audit

over

seven

point

six

billion

customers have used microsoft purview to audit over

Asian

activities to

today.

date, up

five

x

quarter

over

seven point six billion agent activities to date up five x

quarter.

Underlying

everything

I've talked

about,

so

far

is

not

quarter over quarter underlying everything i've talked about

that

on

our

so far is our infrastructure

infrastructure.

We

are

building

a

against

the

growing

book

of

business

with

a

fungible

fleet

that

allows

us to be able

we are building against a growing book of business with a fungible

dynamically

allocate

capacity

to

the

highest

value

of

opportunities

fleet that allows us to dynamically allocate capacity to the highest

across

compute

data

foundry

and

go

value opportunities across compute data foundry and copilot

co-pilot.

Excelerating

the

dem,

led

to

us

adding

twenty

new

data

accelerating demand led to us adding

centers

across

five

continents

this

quarter.

twenty four new data centers across five continents this quarter

And we

are

bringing

it

the

capacity

on

online

faster,

reducing

docked

to live

times

by

and we are bringing capacity online faster reducing doctor lifetimes by

about

20

percent

quarter

over

quarter

for

new

GB 300s

in

our

about twenty percent quarter over quarter for new

biggest

regions,

which

may

up

the

majority of the

GPU

gb 300s in our biggest regions which make up

deployments.

At the

same

time,

we

continue

to

get

the majority of the gpu deployments at the same time we continue to get

more

from

the

infrastructure. We

already

have.

by

optimizing

a

across

the

data

from the infrastructure we already have by optimizing

center

design,

silicon,

can

system.

software and

model

For

example,

across the data center design silicon system software and models

we

increase

the

three

throughput

for quite a

co-pilot

workloads

by

over

fifty

for example we increased the throughput for copilot work

quarter

over

by over fifty percent quarter over quarter

quarter.

We

continue

to

scale

our

fleet

with

the

latest

innovations

from

Nvidia

AMD.

along with

we continue to scale our fleet with the latest innovations from nvidia

a long

alongside

our

own

mile

amd alongside our own maia systems

systems.

We

have

docked

our

first

and

video

a

we're going

rubbing

in

GPUs

and

a

very

excited

about

we have docked our first nvidia vera rubin gpus and are very excited about it

it.

My

two

to

200

is

already

delivering

up

to

one

point

seven

times

more

maia two hundred is already delivering up to one point

tokens

per

watch

across

the

AI

experience

is

in

and

teens

code.

seven times more tokens per watt across the ai

and

my

three

300

will

drive

further

the

experiences in teams and copilot and maia three hundred will drive

gains

delivering

forty

percent

more

tokens

but

per

watch

compared

to

the

leading

further gains delivering forty percent more tokens

GPU

base

per watt compared to the leading gpu based systems

systems.

Our

growth

extends

beyond

GPUs. We

continue

to

see

strong

our growth extends beyond gpus we continue to see

adoption

of

our

cloud.

native

cobalt.

CPUs

in

improving

price

strong adoption of our cloud native cobalt cpus

performance

for

general

purpose, cloud.

workloads.

all

up

as

you

improving price performance for general purpose cloud workloads

you're

growth

to

was

brought

based

across

to cross

both

end to

and

small

all up azure growth was broad based across both enterprises and

medium

business

segments

and

spanning

both

core cloud.

services

and

AI

small and medium business segments and spanning both core cloud services and ai infrastructure

i

infrastructure.

Finally,

let

me

tell

turn

to

devices

and

consumer.

In

Windows,

we

we're

are

executing

on

finally let me turn to devices and consumer

our

vision

to

bring

hybrid

intelligence

to

every

desk and

in windows we are executing on our vision to bring hybrid intelligence to every desk

every

home

making

every

PC

the

secure

agent

box.

As

more

and every home making every pc a secure agent box

capable

models

run

around

locally,

we

see

it

an

opportunity

to

make

it

more

as more capable models run locally we see an

intelligent

effectively

on

to make it more intelligence effectively unmetered

unmeeted.

We are

working

with

the

broader

hardware

in

ecosystem

to

bring

these

capabilities

to a

new

we are working with the broader hardware ecosystem to bring these capabilities

generation

of

PCs

are

across

amount

rise

in

AMD.

AI

400

hundred

series

to a new generation of pcs across amd's ryzen ai

in

Tel

core

ultra

series

3

quack

um

on

snap

dragon

next

four hundred series intel core ultra series three qualcomm snapdragon x

x to

two

series.

And

only

at

this

month,

we

also

announced

new

PCs

powered

by

NVIDIA's

two series and earlier this month we also announced new pcs powered by nvidia's

RTX

Spark

and

DGX

station

for

windows

with

these

new devices.

you

rtx spark and dgx station for windows

can

run

last year

year's frontier.

models

on your

lap

with these new devices you can run last year's frontier models on your laptop

dog.

And

last

quarter

is

model

I

at

your

desk.

We

are

bringing

together

and last quarter's model at your desk

windows

and

agent

in

three six

five.

we are bringing together windows and agent three six five

So

agents

can

work

with

secure

boundaries

on

the

device.

Be introduced

Microsoft

so agents can work with secure boundaries on device

execution

containers,

a

policy

driven

execution

layer

that

we introduced microsoft execution containers a

gobbled

them

and

contains

agents

across

policy driven execution layer that governs and contains agents across windows

windows

and

other

platforms.

integrated

with

agents

365

or

are

governance

and

observe

and other platforms integrated with agent three sixty five for governance and

ability.

Agents

like

OpenAI

code.

Codex

and

throw

Claude.

code.

observability agents like openai codecs

meta

muse

are

a

adopting

MX

C

and

anthropic claude metamuse are adopting mxc

customers

like

Meta

are

starting

to

deploy

it

across the

their

enterprise in

environments.

and customers like meta are starting to deploy it across their enterprise environments

In

so

such an

advertising,

being

an

and

Edge

wants

a

to

get

took

share

in

linked

in search and advertising bing and edge once again took share

in

engagement

because

continues

to

deepen across

the

our

mold

than

one

point

four

in linkedin engagement continues to deepen across

billion

members,

with

time

spent,

viewing

content

in

our more than one point four billion members with time

the

feed

up.

15%.

percent here

yet

over

we

here.

are.

and

spent viewing content in the feed up fifteen percent year over year

finally, in

gaming,

which

we're going

to make a

remain

focused

on

building

great

games

and reaching out

players

and finally in gaming we remain focused on building great games and reaching players

wherever

the

choose

to

play

across

console

PC

mobile

and

cloud.

wherever they choose to play across console pc mobile and cloud

Mine drafted

delivered

a

record

quarter

reaching

all

time

highs

in

both

minecraft delivered a record quarter reaching all time high

engagement

and

revenue.

While

world

of

war

had

its

in both engagement and revenue while world of warcraft

largest

made

up

in

French

of

had its largest beta in franchise history

history.

We

ended

the

hole

holiday

season

with

one of

our

strongest

words

and

third

party

lineups in

years.

we entered the holiday season with one of our strongest first and third party lineup

including

more than

warfare

4,

which

launched

last

week, to

the

best

reviews

for

in years including modern warfare four which launched last week

a

colour

of

Duty

game in the

more

than

a

decade.

And

Grant

Theft

Auto

to the best reviews for a call of duty game in more than a decade and grand theft auto six

six,

which

is kind of a good

coming

to

x

Xbox

next

which is coming to xbox next month

month.

In

closing,

based

on

the

demand

we

see

the

strength

of

our

products

and

the

in closing based on the demand we see

efficiency

we

are

driving

across

the

snack.

I've never

been

the strength of our products and the efficiency we are driving across the stack

more

comforted

in

the

long

term

it

does

for

our

investments.

With

that, let

i've never been more confident in the long term returns for our investments

me

tell

it

over

to

with that let me turn it over to amy

AD.

Thank

you,

Satya, and

good

action

in

everyone.

Our

results

exceeded

expectations

thank you satya and good afternoon everyone our results exceeded

across

bread

expectations across revenue

revenue,

operating

income,

and

earnings

for

per

share.

Driven by

Strong

demand

across

the

Microsoft

cloud.

operating income and earnings per share driven by strong demand across

Loud.

This

quarter,

we

revenue

was

92

billion

dollars, up

the microsoft cloud this quarter revenue was ninety two point three billion dollars up

nineteen

Gross

margin

dollars

include

17%.

percent, and gross margin

per

nineteen percent gross margin dollars increased seventeen percent

percentage

with

68%.

percent.

Operating

income,

increased

21

and gross margin percentage was sixty eight percent

and

22

and

cost

to

of

currency.

or

earning for

per

operating income increased twenty one percent and twenty two percent in constant currency

sure,

share was

four

and

eighty

and

increased

of

the 18 per

percent

and

earnings per share was four point eight nine dollars

19

percent

in

cost

of

and

currency.

What adjusted

for

the

an increase of eighteen percent and nineteen percent in constant currency

impact

for

our

investment

in

and opening

when adjusted for the impact for our investment in openai

AI.

And if

FX,

was

roughly

in

line

with

and fx was roughly in line with guidance

guidance.

Operating

expenses

increased

six

6%.

driven

by

continued

investments that

are

RD

operating expenses increased six percent driven by continued investments in r and d

compute

capacity

and

talent.

Operating

margins

you

increase

slightly

year

over

a

to

compute capacity and talent operating margins increased slightly year over year to fifty

fifty

percent.

Driven by

strong

Revenue

growth,

platform

at

I

efficiency

gains, and focus in

percent driven by strong revenue growth platform efficiency gains

investments

across

our

and focused investments across our portfolio

portfolio.

Partially,

I'll

offset

They failed

to make

she

shift

to

partially offset by sales mix shift to azure

Azure.

When it's

judge

for

the

impact,

for

our

investments,

in

opening

eye,

other

in

income and

expense

was

when adjusted for the impact for our investments in openai

negative

200

million

dollars.

slightly

lower

than

other income and expense was negative two thirty four million dollars

slightly lower than expected

expected.

Capital

expenditures

were

45.2

billion

dollars.

and

some

third

party

capital expenditures were forty five point two billion dollars

capacity

to

delivery is

we

expect

in

a

Q1

or

were

delayed.

Roughly

as some third party capacity deliveries we expected in q1 were delayed

three

quarters

of

our

cap

was

per

certain

lived

assets.

Primarily

in

CPUs

roughly threefour of our capex was for short lived assets

and

GPUs.

including

higher

memory and

storage

cost.

As we can

continue

to

end

primarily cpus and gpus including higher memory and storage cost

invest

in

the

infrastructure

we're

required

for

a

our

customers

to

build

and

scale

AI

as we continue to invest in the infrastructure required for our customers to build and scale ai

applications

applications.

The

were

remaining

sin

was

for

long

lived

assets.

This

quarter, you

can at

is

were

where

seven

the remaining spend was for long lived assets this quarter finance leases were seven point

7.4

billion

four billion dollars

dollars.

As a

reminder,

we

were going

the

full

print

principle that

value

of

Finnett

leases

and

in

CapEx

at

the

time

as a reminder we recognize the full principal value

of

lease

of finance leases and capex at the time of lease commencement

commencement.

And

cash

paid

for

PPE

was

39

point

billion

and cash paid for pp and e was thirty nine point four billion dollars

dollars.

Cash

flow of

from

operations

was

with Sit

hit

the

eight

billion

dollars

up

of 29

n

percent.

Given by

strong

cloud.

cash flow from operations was fifty eight billion dollars up twenty nine percent

billings

and

collections.

and

for

free

cash

flow

was

18

driven by strong cloud billings and collections and free cash flow was eighteen point

billion

dollars.

reflecting

higher

capital

expenditures

And

finally,

we

would

turn

six billion dollars reflecting higher capital expenditures

to

a 10

point

billion

dollars

a

to

share

through

giving

it

M and

and finally we returned ten point two billion dollars to shareholders

share

we

through dividends and share repurchases

repurchases.

Now,

to

our

second

segment

results,

we're

pointed

it

under

the

updated

segment

structure

and

now to our segment results reported under the updated segment structure announced

now

in

in september

September.

We're new

from

Asians

and

at

infra

was

76

billion

dollars in

and

grew

revenue from agents at infra was seventy

twenty

five

percent.

We're

fucking

strength

a

across

the

connected

six point eight billion dollars and grew twenty five percent reflecting strength

layers

of

our

platform.

Commercial

booking

decreased

12%

across the connected layers of our platform commercial bookings decreased

and

11% in

constant

and

currency.

driven by

the

impact

from

large

as

Azure

twelve percent and eleven percent in constant currency driven by the impact from large azure

commitments

in

the

prayer

year.

partially

offset, but

by

healthy

growth

and

our

commercial

sales

commitments in the prior year partially offset by healthy growth

motions,

including

a

large

Azure

commitment this

to

quarter.

in our commercial sales motions including a large azure commitment this quarter

Commercial

remaining

for

performance

I'll

obligation

who

grew

70

to six

600

and

commercial remaining performance obligation grew seventy three percent

seventy

seven

million

dollars.

With a

smaller

to

sequential

will

decline,

relative

to

to six seventy seven billion dollars with a smaller sequential

historical

seasonality,

do

did

the

large

azure

commitment

this

decline relative to historical seasonality due to the large azure commitment this quarter

corner.

or

RPO

has

a

way

to

average

duration

of

two

point

to

three

years.

And

our rpo has a weighted average duration of two point three years

roughly,

30

will

be

back in

and

Revenue in the

next

12

months.

of

29%

percent.

You're

a

over

and roughly thirty percent will be recognized in revenue in the next twelve months

up twenty nine percent year over year

year.

The

remaining

portion

recognized

beyond

the

next

12

months,

increased

to

the remaining portion recognized beyond the next twelve months

ninety-eight

increased ninety eight percent

Now,

to

Tamicrosoft

Cloud.

we're

revenue

was

with

63

million

dollars

and

growth

now to microsoft cloud revenue was sixty three point nine billion dollars and growth

accelerated.

to

30%.

and

31% kind

costing

and

currency,

with

was the

sequential

accelerated to thirty percent and thirty one percent in constant currency

dollars

added

nearly

doubling

year over

year.

Reflecting

strong

with sequential dollars added nearly doubling year over year

demand, of

across

Azure

and

M365

commercial

clouds.

reflecting strong demand across azure and m365 commercial cloud

Azure

revenue

was

a

ahead

of

that

expectations and increased

forty-eight

percent.

Even

with

azure revenue was ahead of expectations and increased forty eight percent

the

three

peak

capacity

delays.

noted

earlier.

Driven by

sound

even with the three peak capacity delays noted earlier

driven by foundry

and

in

improved

CPU

wants

and improved cpu monetization

Foundry

Revenue

more

than

tripled

year

over

year.

With

upside, there's

driven

foundry revenue more than tripled year over year

by

a

efficiency

gains,

a

across

our

GPU

fleet, then a

allowed

with upside driven by efficiency gains across our gpu fleet

us

to

allocate a

additional

capacity

to

customers.

As

well,

if

higher

that allowed us to allocate additional capacity to customers

revenue

per

token,

that

we

been

benefit

at

from

in

the

as well as higher revenue per token that we benefited from in the quarter

quarter.

Across

our

CPU

fleet,

engineering

work

and

enabled

us

to

identify

and

monitize

under

across our cpu fleet engineering work enabled us to identify and monetize

you

utilized

live

capacity

this

quarter.

helping

us

serve

more

of

the

growing

demand,

which

our

underutilized capacity this quarter helping us serve more of the growing demand

existing

with our existing capacity

capacity.

The

time

of

engineering

efficiency

is

like

these as

well

three

3p

GPU

list

the timing of engineering efficiencies like these as well

missed deliveries, are

our

own

capacity

build

out.

And

our

coach

changes

as 3p gp lease deliveries our own capacity build outs

from

Model

mix.

can

create

quarterly

variability in

the

and arpu changes from model mix can create

year

over

year

gross

growth

quarterly variability in the year over year growth rate

rate.

Ampersi

65

commercial

cloud.

revenue

increased

18%

and

nineteen

it

m365 commercial cloud revenue increased eighteen percent and nineteen percent in

comes in

and

currency.

We'll

adjusted

for

the

prior

year

coffee

that

been at

from

one

point at

of

in

N

constant currency when adjusted for the prior year comparable

period

of revenue

that benefited from one point of in period revenue recognition

than

recognition.

On a

report,

reported

basis,

we have

you

Girls

was

with

17%.

and

18%.

in

on a reported basis revenue growth was seventeen percent and eighteen percent

costing

and

in constant currency

currency.

Results

where

were

ahead

of

that

expectations.

driven

by

stronger

GitHub

co-pilot

adoption

results were ahead of expectations driven by stronger github copilot adoption

and

use

uses.

Partially

I've

said,

my

weaker

sale

that's

execution in

our

and usage partially offset by weaker sales

and

M365

E3

and

stand

execution in our m365 e3 and standalone skus

skews.

We

continue

to

evolve

our

sales

motions

to

balance

this

more

traditional

skew

per

seat

we continue to evolve our sales motions to balance those more traditional

rhythms with

the

newer

prime

yum

on

e

E7

seven and

there's

sixty

five

sku per seat rhythms with the newer premium e seven m three sixty five copilot

co-pilot, and

use

this

base

based

for

productivity

the

offerings.

You're

over

your

here,

gross,

was

driven

by

both

our

and usage based productivity offerings year over year growth was driven by both arpu

Arpu

and

Seed.

Arpu

growth

was

led

by

our

planium

seat

based

offerings.

including

and seats arpu growth was led by our premium seat based offerings

M for

through

65

including m365 co pilot

co-pilot,

I

and

E

which is

already

reached

millions

of

paid

e five and e seven which has already reached millions of paid seats

seats.

With a

additional

contribution,

from

you

users

based

offerings,

I

primarily

get

code.

with additional contribution from usage based offerings

co-pilot.

and

Copilot rather

revenue

growth

they accelerated

quarter

over

primarily github copilot and copilot revenue growth accelerated quarter over

quarter,

which can

continued

to

adoption

across

M365.

GitHub,

and

quarter with continued adoption across m365

github and security

security.

Paid

M

for

65

commercial

seats

grew

five

percent

with

some

impact

on

from the

weaker

paid m three sixty five commercial seats grew five percent

sales

that

that's

noted

with some impact from the weaker sales execution noted earlier

earlier.

Gross is

driven

by

stall

fall

basic

spans

across

all

customer

segments.

the

though

primarily in

growth was driven by installed base expansion across all customer segments

our

S and

D

front line

worker

though primarily in our smb and frontline worker offerings

offerings.

and you

can

to summer

cloud.

revenue.

increase that

seven

17

percent

and

sixteen

in

cost

m365 consumer cloud revenue increased seventeen percent and sixteen percent in

to

and

currency.

Now it's a quench

as

we

begin

to

lap

the

benefit

from

the

price

increase in the

prior

constant currency down sequentially as we begin to lap the benefit from

price increase in the prior year

year.

Poor

of the

and

Sir

server

licensing

rather

revenue

decreased

three

3%

and

two

productivity and server licensing revenue decreased

2%

percent

cost in

and

Christians.

Primarily

driven

by

decrease

in

transactional

three percent and two percent in constant currency primarily driven by a decrease in transactional

purchasing

as we

laugh the

benefit

from

product

launches

and

the

prior

purchasing as we lapped the benefit from product launches in the prior year

year,

partially

offset.

By a greater

mix

of

contracts

that

carry

higher

in

period

revenue

partially offset by a greater mix of contracts that carry higher

recognition.

It is

really

still

the

solutions cloud.

rapid

and

creates

it

period revenue recognition industry solutions cloud revenue increased ten percent

10%.

with

quotes

and

dynamics

for

through

65 and

LinkedIn

in

talent

solutions.

Though bookings

with growth in dynamics three sixty five and linkedin talent solutions

trends

can

continue

to

though booking trends continued to moderate

moderate.

And

in

front

a

here

is

in

the port

services,

we

we've

have

been

to

increased

four

4%

and

five

in

cost

and in frontier and support services revenue increased four percent and five percent in

and

of

currency.

driven

by

constant currency driven by support

support.

Mega

of

cloud.

grows

Gross

margin

for

certain

sin is

declined you

over

year

to

six

66

six

microsoft cloud gross margin percentage declined year over year to sixty six percent

percent. Driven by

sales

make

shift

to

Azure.

Partially

off

offset

by

product

level

margin

and

driven by sales mix shift to azure partially off

improvements.

primarily

in

offset by product level margin improvements primarily in azure

Azure.

And for

the

and for the segment

second, we're going

margin

Dollars, you

increase

increased

20%

and

in

21%

in

it comes to

and

currency.

I'm

very

gross margin dollars increased twenty percent and twenty one percent in constant currency

fensive

increase

ten

driven

by

the

RD

in

investment

noted

operating expenses increased ten percent driven by the r and d investments noted earlier

earlier.

Operating in

income can

grew

to

24%

in

and

twenty five

kind

costing

of

operating income grew twenty four percent and twenty five percent in constant currency

currency.

and

operating

margins

decrease

slightly

year over

to

fifty

three

and operating margins decreased slightly year over year to fifty three percent

percent. As

John

webinar

as strong revenue growth

growth,

platform

efficiency

gains,

and

book

investments

across

our

portfolio.

We're more

than

off

platform efficiency gains and focused investments across our portfolio

by

sales

mic

mix

Shift

to

Azure.

now

to

devices.

is

in

and

were more than offset by sales mix shift to azure

consumer.

Rebellion

was

15.5

billion

dollars

and

now to devices and consumer revenue was fifteen point

they

declined

three

percent.

Search

and

advertising

point five billion dollars and declined three percent

revenue

X tack

increased

twelve

percent.

Now, what the

head of

search and advertising revenue ex tac increased twelve percent

Xpectations,

driven

by

higher

volume

and

rate,

across

and was ahead of expectations driven by higher volume and rate

LinkedIn, Edge,

and

across linkedin edge and bing

Bing.

Next

for

where

a

new

decreased

two

2%.

percent, and

Xbox

kind

can't

and

services

revenue

decreased

xbox revenue decreased two percent and xbox content and services revenue decreased

two

percent, and

in

one

percent

in

costing

and

currency.

Driven

by

the

clients

and

they're

pretty

hunt

and

X

two percent and one percent in constant currency driven by declines in third party content and

Xbox

game

pass

partially

all

by

growth

in

first

party

xbox game pass partially offset by growth in first party content

content.

And

when

does

those

OYAM

and

devices.

rub

New

decrease

twenty-two

Windows

OEM

and windows oem and devices revenue decreased twenty two percent

yeah, revenue

was

below

expectations,

and

the

decreased

twenty-seven

in

windows oem revenue was below expectations and decreased twenty seven percent in

and

28%.

in

the

cost

of

and

currency.

driven

by

the

Windows

10

and

of

the

support to

demand in

the

prior

eight percent in constant currency driven by the windows ten end of support demand in the

prior year

year.

Inventory

draw

by

OEM and

Channel

partners.

and

we

grew

are

PC

market

to

inventory drawdowns by oem and channel partners and weaker pc market demand

demand.

Inventory

levels

remain

elevated.

Second

grows

more

merchant

and

dollars

were

inventory levels remain elevated

relatively

unchanged

over

a

here, and

I

operating

expenses

segment gross margin dollars were relatively unchanged year over year

decreased

three

3%.

driven by

X

XBOX. Partially

offset, but

and operating expenses decreased three percent driven by xbox

by the

continued

and

investments

that

in

RD,

no

noted

partially offset by the continued investments in r and d noted earlier

earlier.

operating

income

and

increases

two

2%

and

three

3%

in

costing

and

currency.

operating

operating income increased two percent and three percent in constant currency

margins

increase

your

you

over

here to

third

thirty five

Driven

by

lower

amortization at

and operating margins increased year over year to thirty five percent

of

the

intangible

assets

from

the

Activision.

Act with

Vision.

partly

driven by lower amortization of intangible assets from the activision acquisition

offset, but

by the

impact

from

a

lower

mix

of

windows

OEM

partially offset by the impact from a lower mix of windows oem revenue

revenue.

Now,

moving

to

the

outlook

for

a

second

quarter.

what shines are

we

say they

now moving to the outlook for our second quarter

you know it

otherwise,

it's

on

a

US

dollar

which unless specifically noted otherwise is on a u s dollar basis

basis.

Based

on

current

rates,

we

expect

FX

to

have

no

meaningful

impact

on

Total

based on current rates we expect fx to have no meaningful impact on total revenue

revenue.

cards,

or

operating

expense

cogs or operating expense growth

growth.

Or,

on

revenue,

growth

in

either

or on revenue growth in either segment

segment.

Starting

with

segment

starting with segment guidance

guidance.

we

have

got

rubber

from

agents

and

in

infra at

of

80

point

to

eighty

we expect revenue from agents and infra of eighty point one percent to eighty point

billion

U.S.

dollars.

or

growth

of

24 to

25

seven billion dollars or growth of twenty four percent to twenty five percent

percent.

In

commercial

bookings,

we

expect

healthy

growth

in

our

commercial

sales

motion.

The

results will

in commercial bookings we expect healthy growth in our commercial sales motions

be

in

impacted

by

the

significant

Azure

commitment

find

in

the

prior

the results will be impacted by the significant azure commitments signed in the prior year

year.

Timing,

related

to

significant

Azure

your

commitments

like

these

over the

result

in

the

timing related to significant azure commitments like these

material

volatility

and

in

bookings.

Making

can quarterly

gross

growth

rates

less

and

than

will result in material volatility in bookings making quarterly growth rates

indicative

of

underlying

sales

less indicative of underlying sales execution

execution

In

Azure,

we

expect

to

rub

go

grow

the

to

of

49

to

50

percent in

and

constant

in azure we expect revenue growth of forty nine percent

currency

with

continued

officials

in

games

across

our

to fifty percent in constant currency with continued efficiency gains

CPU

and

GPU

fleet.

How

helping

to

ask

offset

some

three

3K

across our cpu and gpu fleet helping

page GPU

as

a

service kind

contracts

that

had

have

been

delayed

to

to offset some 3p gpu as a service contracts

H

that have been delayed to h two

H2.

Customer

demand

can

continues

to

exceed at

available

customer demand continues to exceed available supply

supply.

And looking

beyond

you

your

G2,

too, you're

over

your

growth

will

continue

to

reflect

the

timing

and

scale

and looking beyond q2 year over year growth will continue to

of

engineering

efficiencies

delivered

in

the

quarter.

And

you

new

capacity

the timing and scale of engineering efficiencies delivered in the quarter

adds.

It's well

all

as a

the strong

prayer

you're

or

comparable,

then you

included

accelerating

and new capacity adds as well as a strong prior year comparable

growth in

the

second

half.

An

M for

Shifty

Five,

commercial

cloud.

we

that included accelerating growth in the second half in enterprise sixty five commercial cloud

expect

both of

a

approximately

19%.

cost

in

and

currency.

with

FX

expected

to

we expect growth of approximately nineteen percent in constant currency

reduce

reported

growth by

left

than a

with fx expected to reduce reported growth by less than a point

point.

We

expect

continued

momentum

across

our

premium

pursuit

year

offerings

and

you

users

based

base

we expect continued momentum across our premium per seat offerings

offerings.

Along with

some

improvement,

in

at the

a

across

e

and

and usage based offerings along with some improvement in execution across e3

our

standalone

and our standalone skus

skews.

Growth

will

be

driven

primarily

by

Arp,

with

but

additional

contributions

from

growth will be driven primarily by arpu with additional contribution from seats

seats. And

we

can

tend

you

to

expect

revenue

growth

to

a

accelerate

through

the

year.

Ember 65

can

and we continue to expect revenue growth to accelerate through the year

consumer

cloud.

we have

should

and growing

in the

low

teens

down

the

Quentin

as we

act

m365 consumer cloud revenue should grow in the low teens

the

price

impact

noted

down sequentially as we lap the price impact noted earlier

earlier.

Price

and

circle

licensing

revenue

should

decline in

the

mid

to

high

single

productivity and server licensing revenue should decline in the mid to high

digits.

Now,

Down

it's quite

due

to

a lot

lower

expected

make

mix

of

contracts

that

Carrie

single digits down sequentially due to a lower expected mix of contracts that carry

higher

in

period

revenue

new

recognition.

Cornerling

grows

can

vary

materially.

higher in period revenue recognition quarterly growth can vary materially

based

on

time

contract

next, product launch

timing,

and

other

transactional

purchasing

based on contract mix product launch timing and other transactional purchasing trends

trends.

In

industry,

so

solutions cloud.

club,

we've

got

revenue

growth

to

be

in

the

mid to

high

single

digit.

in industry solutions cloud we expect revenue growth to be in the mid to high single digits

We can teach

change

to

impact

from

the

booking

trends.

noted

with continued impact from the bookings trends noted earlier

earlier.

And

in front of

Tier

and

in

support

services,

we

we've

got to

Ruby

grow

in

the

low

to

mid

single

and in frontier and support services we expect revenue to grow in the low to mid single digits

digits.

Microsoft

Cloud.

grows

more

margin

than

for

percentage, should

to

be

roughly

65

five

down

here

microsoft cloud gross margin percentage should be roughly

over

year.

as

continued

improvement

and

part

product

level

margins

sixty five percent down year over year as continued improvement in product level margins

is

more

than

all

offset

by

sales

and

mix

shift

to

is more than offset by sales mix shift to azure

Azure.

In device, the

that

and

then can

consumer.

the

expect

Ruby to

be

15

the

point

to

do

in devices and consumer we expect revenue to be fifteen point nine percent to

sixteen that

the

at point

four

billion

US

dollars.

So

you can have

not

advertising

rubber

acts

tech

growth

should

us16.4 billion dollars search and advertising revenue

be

in

the

low

double

digits.

driven

by

consistent

trends

and

rate

and

ex tech growth should be in the low double digits driven by consistent trends in rate and volume

volume.

With

overall

search

and

at

advertising,

we

revenue,

expected

to

grow in

at

to

a

similar

with overall search and advertising revenue expected to grow at a similar rate

rate.

And

it

Xbox

kind

content and

services,

we

We've got to

rub

new

growth to

be

in

the

mid

to

high

single

and in xbox content and services we expect revenue growth to be in the mid to high single digits up

digit up

to

the

sequentially.

Driven by

the

tiny

of

contact.

Much as

a

across

both

third

and

sequentially driven by the timing of content launches

first

across both third and first party

party.

With kind

content

launch

patterns,

through

the

year, they

we

expect

growth

to

be the

strongest in the

second

with content launch patterns through the year we expect growth to be the strongest in the second quarter

core.

with some

deceleration in

Q3 and for

their

the

moderation in

Q4.

Her

revenue in

with some deceleration in q3 and further moderation in q4

and

Q2 is

a

be

decline

here over

hardware revenue in q2 should decline year over year

year.

When

this

does

OAM

and

if

the

devices

rep

frequency should

decline in

the

mid

30s?

Growth will

we

continue to

be

in

windows oem and devices revenue should decline in the mid-30s

enpacted

by

elevated in

inventory

levels.

PC

market

to

growth will continue to be impacted by elevated inventory levels

demand.

And probably

your

copper

bowl

ball that

then

benefited

from

one

Windows

10

end of

the

pc market demand and a prior year comparable that benefited from windows ten end of support

support.

as in

prayer,

quarters,

the

range

of

potential

outcomes

remains

wider

than

as in prior quarters the range of potential outcomes remains wider than normal

normal.

We

expect

these

trends

to

continue

to

the

rest of

physical

we expect these trends to continue through the rest of the fiscal year

year.

They're

are four

at a

it told

all

company

level,

revenue

should

be

between

ninety

and

therefore at a total company level revenue should be between ninety six

97

point

billion

U.S.

dollars

or

growth at

of

18 to

19

and usd ninety seven point one billion or growth of eighteen percent to nineteen

percent.

We

We've

Code.

that

but

they're

two

points

to

32

billion

US

dollars

percent we expect cogs at thirty two point seven billion dollars to thirty two point nine billion dollars

or

growth

twenty

to

27

percent.

And I'm going

bring a

expense

of

eighteen

point

or growth of twenty six percent to twenty seven percent and operating

to

18

billion

U.S.

dollars

are

growth

of

expense of eighteen point five billion to eighteen point six billion dollars

nine

9%.

percent.

Driven by

I continued

to invest

in

RD

can

and

cheap

keep the

capacity

and

or growth of nine percent driven by continued investment in r and d compute capacity and talent

sell

it.

Our

close

guidance

across

both

cobs

and

optics

include

an

estimate

for

the

recently

our cost guidance across both cogs and opex includes an

announced

employee

volunteer at the

exit

offer.

Operating

margins,

should

be

estimate for the recently announced employee voluntary exit offer

down

slightly, you

are

will

over

operating margins should be down slightly year over year

year.

If

putting any

impact

from

our

investments

and

open

opening

AI,

other

income

makes

looks like to

could

excluding any impact from our investments in openai

do

roughly

negative

three

300

million

dollars

and

interest

was

other income expense is expected to be roughly negative three hundred million dollars

income.

will be more

than

offset

the

by

interest

expense, which

includes

the

interest

payments

as interest income will be more than offset by interest expense

related

to

data

center

finance

which includes the interest payments related to data center finance leases

leases. And we expect

our

cue

to

affect

effective

tax

rate to

be

do

a

approximately

twenty

and we expect our q2 effective tax rate to be approximately twenty percent

Next,

Kepler's

on

yours.

In

Q2,

we've

got

CapEx

box men will

be

over

next capital expenditures in q2

50

billion

dollars.

Therefore,

for

the

calendar

we expect capex spend will be over fifty billion dollars

year,

Spin should

be

a

approximately

170

billion

therefore for the calendar year spend should be approximately one hundred and seventy billion dollars

dollars.

Due

to the

three

peak

capacity

to

delays, noted

due to the 3p capacity delays noted earlier

earlier.

In the

second

half of

the

physical

year,

we

can't

expect

CapEx

men

to

accelerate

in the second half of the fiscal year we currently expect

primarily

from

CPUs.

includes

the

a higher

memory

and

storage

capex spend to accelerate primarily from cpus inclusive of higher memory and storage costs

cost.

and

you

GPUs as

well

the

three

peak

pass you

deliveries

that

shifted

to

and gpus as well as the 3p capacity deliveries that shifted to hd

H2.

And I

we

can

continue

to

improve,

the

efficiency

is

that

of

our

infra

and as we continue to improve the efficiencies of our infrastructure

structure,

each

dollar

a

of

is

CapEx

has

to

the

potential

to

support

more

revenue and

higher

returns

over

each dollar of capex has the potential to support more revenue

and higher returns over time

time.

Give

our

strong

business

performance,

we

expect

to

continue

to

remain

free

cash

flow.

given our strong business performance we expect to continue to remain free cash flow positive

positive

and

in

FY

twenty

To

come

complement

cash

generated

by

the

business,

and

preserve

financial

in fy 'twenty seven to complement cash generated by the business and preserve financial

flexibility.

We will

act that

it

additional

sources

of

funding when

we

believe

it

is

a

attractive

to

do

flexibility we will access additional sources of funding when we believe it is a

so.

In

closing,

we

are

off to

a

strong

start

to

attractive to do so in closing we are off to a strong start to

FY twenty

but

this

accelerated

growth

across

the

microsoft

cloud.

Party

fy 'twenty seven with accelerated growth across the microsoft cloud

the

along

with

a

efficiency

gain,

across

our

data

center

infrastructure

and

our

first

party

product improvements along with efficiency gains across our data center infrastructure and

apps and

agents.

are

increasing

the

value.

and

improving

the

outcomes we

deliver

to

our

our first party apps and agents are increasing the value and improving the

outcomes we deliver to our customers

customers.

Delivering

that

value

to

our

customers

but

positions

us

but

for

durable

long

long-term

term

growth. With

delivering that value to our customers positions us for durable long term growth

that,

let's

go

to

QA

with that let's go to q and a jonathan

⁇ A,

Jonathan.

them

Thanks

say

they

I

thanks amy

mean,

me,

will

now

move

over to

Q

and

we'll now move over to q and a

A.

I'll take

of

the

respect

specs

for

I'll do

on

the

call,

we

request

the

this

please

only

out of respect to others on the call we request

ask

one

question.

that participants please only ask one question

all

right,

can

you

believe

your

repeat

operator can you please repeat your instructions

your

instructions?

like

thank

thank you

you.

you're

and

John

gentlemen, if

you're

a

were

like

to

ask

a

quite

question,

please

prove

press.

star

one.

on

your

telephone

keypad.

And

they

come for

mission

tool

will

indicate

you're

line

as

is in

the

quest you

too.

You

may

press.

star

two

too if you're not going to be able to

you

would like

to remove

your

question

from

the

queue.

but part of

participants

using

Speed

or

equipment,

and

it may be

necessary

to

pick

up

your

hands

it may be necessary to pick up your handset

that

before

closing

the

star

keys.

Well,

One

moment,

will

as

we

both

pull off a

for

one moment please as we pull for questions

questions.

sensed.

and

our

first

question comes from the line of Adam Wood with

Morgan

and our first question comes from the line of adam wood with morgan stanley

Stanley.

Please

please proceed

proceed.

I

um

thanks

to

very

so

a

much get

hi thanks so much for taking my

you

your

a

uh

and

on the

to

eat.

get

to

we

a

I'm

so sorry I

love

that

it's

right in

up X

in

this

but

the take your i'm questions to your your i'm very

better

as

is

audience

to quench

me. Come on, as

the

incremental

I

ask

the

comes

come

cloud gross margins sequentially can i ask as incremental ai capacity

online, what

do

you

see

is

like

you

to

did

could be

the

more

important

rider

of

her

your

returns with

the

next few

comes online what do you see as likely to be the more

years.

In proving

as

they

and

you

unit

know cost

with

within

the

driver of returns over the next few years improving utilization and unit

this

year or

you're a

ability

to

come

model

monitor is

more

layers of

each

work

workload.

costs within azure or your ability to monetize more layers of each workload

across

that

foundry

and

go

across fabric foundry and copilot

dope

balance.

it.

Maybe we're quite

question

out of

had

don't

on

a

thanks for the question adam

know.

both.

I'd

would

say

all of

the

i'd say all of the above

above.

But I

think

to

the

way

we

had

coming

out

at

of

this.

but i think the way we're coming at this

is

we have

a lot

one

pool

is we have one pool

and

we want

to

get

the

pool

to

be

as

a

efficient.

and we wanna get the pool to be as efficient

um

And

part of

fundraising,

right?

That's

sort of

the

place

where

if

I

sort

start

of

think

and fungible right that's sort of the place where if i sort of

about

all

of

the

physics

of

how

we have

building

out

the

data

think about all of the physics of how we're building out the data centers

centers.

All of

the

operational

rigor

with

which

we

can

bring

uh

all of the operational rigor with which we can bring

up

the

capacity.

And

then

if

of

course,

how

do

we

run

up the capacity and then of course

the

work

towards

that

are

optimized

on

that

infrastructure.

how do we run the workloads that are optimized on that infrastructure

And

once

you

do

that,

then

it's

just

a

function

of

how

we

and once you do that then it's just a function of

allocate

it.

by looking

at

the

demand

signal.

And

he

how we allocate it by looking at the demand signal

even

there,

even

in

get

the

our

I'm not

segment

reporting

I

think

you

kind

and even there even in our new segment reporting i think you kind of

of

see

it, which

is

cool

what

see it is co pilot

a pilot.

cool

Island

state

full

the

universe

on

the

knee

pit

it is

well

I

copilot stateful database underneath it

IQ.

That

gets

used

in

foundry.

which

is

is workiq that gets used in foundry

where

people

will

build

better

that

up

to

their

and

multi-agent

system

for

the

which is where people will build let's say a multi agent system for

supply

chain

supply chain that

that

fans

will

on

in

and

structure.

spans both unstructured and structured

of

course,

it

if you

uses

a

post-class

data

database in

Azure.

And

so

course it uses a postgres database in azure

I've

and then

by the

buy

and so and and then by the way

way,

all

of

the

genetic

work

is

registered

in

the

Asian

three

365

all the agentic work is registered in the agent three six five and

and

the

set

section

manages

the

security of

it,

right?

So

perception manages the security of it right so

to

our

it

least

we

look

at

our

all of

this

to us at least we look at all of this as

as.

the

same.

infrastructure of

course we

were

report

to

you

in other

our

variety

of

the same infrastructure of course we report to you in a variety of

different

products.

different products but

But

you

you're

core

whole

question

will

away

is

the

margin

going

to

come

from.

Ways

the

leverage

just going

to

come

your core question of where is the margin going to come from where is the leverage is going

from?

It's not going

to

come

from

any

one.

It's going to

come

for

from every one of

them.

come from it's not gonna come from any one it's gonna come from every one of them

and it

hump

pounds when

we

work

them

my

and it compounds when we work them across

across.

I

think

i think that's

that's

in

Haram

work

if we missed

the first

front

half of

the

your

question.

I think we have

at

least

caught

the

back

and adam i'm sorry if we missed the front half of your question i think we at least caught the back half

app.

great

Things

I

know

then,

yeah

I see

seen it

is

where

for

all the

than they

thanks adam yeah absolutely that's very helpful thank you

you.

Oprate

the

next

question

operator next question please

please.

do

next

that

question

comes

from

the

line

of

Carl

the next question comes from the line of

Kearston with

would you

UBS.

Please

karl keirstead with ubs please proceed

proceed.

Okay, thank

you.

Um, any of

and

Saturday

I want

I'm

wondering if

could

you

we

can

unpack

what

I

thought

andy and sovereign i'm wondering if you could unpack what i thought was

was.

one

of

the

key

metrics

from

this

call

and

that

is

the

guidance

for

Azure

growth

one of the key metrics from this call that is the guidance for azure growth of

of

what he

to

50%

percent constant

currency

and

in

December. I can

forty nine to fifty percent constant currency in december i can imagine

imagine

there's

a

number

of

variables that

could

pass

you

to

you're

putting

out

up

the

allocation

there's a number of variables the capacity you're putting up the

allocation to

to

third

party

customers

probably

open

AI

strength

but

for

perhaps you

could

third party customers probably openai strength

come

in a little

bit

perhaps you could comment a little bit on

on

what it

what's going

of

the

key

drivers

are, given

how

good they

that

number

seems, at

least to

me. Thank

what some of the key drivers are given how good that number seems at least to me thank you

you.

I

Thanks,

Coral, for

the

question and

Maybe

thanks karl the question maybe

I'm

I'll

start

by

talking

a

little

bit

about

Q1, and I

think

that'll

i'll start by talking a little bit about q1 and i think that'll help

help

to

things

think

through

Q2

and

even

going

forward. And

it's

not

unrelated,

to think through q2 and even going forward and it's not unrelated

really to

Adam's

question

much should it have

some

level as

well.

In

Q1,

really to adam's question at some level as well

I

would

in q1 i would say

say.

the

engineering

teams

have

really

delivered

the engineering teams have really delivered

uh

very

good

very very good work

work.

in terms

of

improving

a

efficiency at

the

platform

layer.

that is

not

in terms of improving efficiency at the platform layer

just

a

state

or

around

the

official

and

C.

that is not just a statement around the efficiency

of

GPUs. It's a

statement

around

the

efficiency of

seal

every

of gpus it's a statement around the efficiency of every layer

layer.

How

the

app

you

utilizes

the

platform

and

how

John

you

utilizes

the

platform as

well

how the app utilizes the platform and how foundry utilizes

as

the

Azure

platform

itself.

the platform as well as the azure platform itself

Those

are

the

fission

and

those efficiencies

fees.

um

you

you know

know

there's

sort

of

ground

out

every

week.

and you

have

good

ideas a

lot

of

they're sort of ground out every week and you have good ideas a lot work

work.

some

don't. And you

stay

out of the

at

it

So

there are

not

maybe

as

ads

some don't and you stay at it so they're not maybe as

predictable

and

in terms

of

how

much

impact will

we'll

get

in

order.

She

wants

they

did

a

very

good

predictable in terms of how much impact we'll get in quarter

job.

And you

saw

some of

that

result

in

us

being

able

q1 they did a very good job and you saw some of that result in us being able

to

put

in

more out of

the

case

into

foundery

in

the

quarter.

to put more allocation into foundry in the quarter

That's a

great

thing

because

we

are

as

I

said, in

the

call,

we

still

that's a great thing because we're as i said in the call we still

have

to

that

it

exceeds

the

supply.

So

where

are

we

can

have

our

engineering

have demand that exceeds supply so

teams

deliver

those

efficiency.

where we can have our engineering teams deliver those efficiencies

We

do

really

try

to put

it

into

foundry when

we

can.

we do really try to put it into foundry when we can

because

it's

so

important

this

that's not your

to

talked

about.

is

a

how

customers

because it's so important as satya talked about into how

customers broadly

broadly.

are

built

what I would

call

against the new

stack.

are building what i would call against the new stack

Secondly,

in

and

you

mentioned

secondly and you mentioned it

it.

to

help

and

price

will

create

a

little

bit

of

variability

we

had

higher

token

token pricing will create a little bit of variability we had

pricing

than

we

expected in

the

quarter.

Listen

how do

high

quality

higher token pricing than we expected in the quarter

models

that

we're able

to

take

advantage

of.

listen high quality models that we're able to take advantage of

And see you

good

margins

on. Do you

better fit

us in

the

quarter

that

did

and see good margins on do benefit us

happen

in

Q1.

And

I

in the quarter that did happen in q1 and

i think

think

both

of

when

in that

number

and

in

you

learn

was

the if

efficiency

that I told

turned

talked

about

also in that number in q1 was the

apply

not

just

to

our

GPU

sleep

efficiency that i talked about applied not just to our gpu fleet but

but

and

i think

think.

people sort

of

under

underestimate

me

people sort of underestimated

when

the

example

thought

it

you

they

gave

when the example satya gave

or

out

Adam's

question.

for adam's question

That's

a

GPU

CPU

storage

memory

workload. I mean,

it

that's a gpu cpu storage memory workload i mean takes

takes

all

of

the

pieces

And

so

our

ability

to

also

all of the pieces and so our ability to also

create a

additional

capacity

within

our

existing

fleet.

create additional capacity within our existing fleet

Dave

us

some

room

to

be

able

to

convert

that

uh

actually

is pretty

quickly as

well

and

in

gave us some room to be able to convert that actually pretty quickly as well in q1

Q1.

So

in

Q2.

we've

got

those

efficiency

grains

which

is

great.

and that's

little

will

so in q2 we've got those efficiency cranes which is great and those will

continue

into

Q

Q2.

We

need

to

find

some

more

which we're

counting

continue into q2 we need to find some more

on.

and they

able to

get

to

that

guidance that

I

which we're counting on enable to get to that

gave

because I

have

faith

in

the

team's

working

too

you

want

continuing

into

that i gave because i have faith in the team's work in q1 continuing into q2

under

Q2.

But

we

also

need

that

work.

to

be able

to

help

us

a little

bit because we

had

we also need that work to be able

some

supply

We

were

counting

on

Q2 move

out

into

to help us a little bit because we had some supply we were counting on q2 move out into h2

H2.

And

so

you

know,

I

think

ends

your

point,

there's

a

also

some

unknown

and so i think and to your point

on

there's also some unknown on

that

of token

price

through

the

quarter

that stuff can

change.

So

yeah, I think

feel

some token pricing through the quarter that stuff can change so

good.

in

terms of

the

efficiency

gains that

we

so i think i feel good in terms of the

saw,

we

when we're able

and when

I made

able

to

see

those and put them

efficiency gains that we saw when we're able and when i'm able to

in, I

feel

good about

guiding

to

that.

But

as

it

other

things

see those and put them in i feel good about guiding to that

are

less

predictable, I

mean, how do

just

that's

helpful

on

the

but as other things are less predictable

lever's

i hope that's helpful on the levers carl

car.

Yeah,

it

is

Thanks

to

yes it is thanks amy

Amy.

me.

and

for

go.

all brand

the

nick

next

question

thanks carl operator next question please

please.

The

next

that's

question

comes

from

the

line

of

Mark

the next question comes from the line of mark

Murdler,

with

Bernstein

research.

Please

proceed.

merdler with bernstein research please proceed

Thank

you very

much

for

taking

my

question

Congratulations

on

the

solid

quarter

thank you very much for taking my question congratulations

and

on the solid quarter and

the

solid

guy

guidance

It's really

nice to

see

well

how

it

well

you you

guys

are

the solid guidance it's really nice to see how well you've

executing.

I'd like

to

get

a

sense

on

you guys are executing i'd like to get a sense on

the

drivers of

the

AI

strength that

you

in

Azure

being

the drivers of the ai strength in azure

from

and a

of

Price versus

digitally in the

made of

in

up

being from enterprise versus digitally native in general

general.

Where

AI

made

native.

it.

Within

print

since

starting

to

the Rayam

out,

and

or ai native with inferencing starting to ram

microscope

the

to

go

the

end of

enterprise

is

and

how do

should we

and microsoft to go to for enterprises

think

a

Amy,

the

about

mix

of

enterprise

customer

and how should we think amy about the mix of enterprise customer workloads

workloads.

Within

overall

work

workload to

at this

point. In

fact,

you

here,

with

the

strong

growth of

the

Azure

AI

within overall workloads at this point and satya with the strong growth of the azure ai

platform

offering.

Can you

give it

us

color

on

what's

driving

that? Is

it

again

in

platform offering can you give us color on what's driving that is it

enterprise? Is

it

digitally

made

of

up

obviously

it's a

the

make

mix of

some

a

both.

But any

color

that

again enterprise is it digitally native obviously it's a mix of both

shows

the

ramp of

that

end or

that

I

think

would

be

but any color that shows the ramp of that enterprise i think would be valuable

valuable.

Yeah,

thanks

for the

quite a

question

Mark.

Maybe

I'll

start

in

an

maybe you

can

add to

yeah thanks for the question mark maybe i'll start and maybe you can add to

it.

Um,

the

it

uh,

I

was

even

you

you're

than

and

the

Yoruk

well it

just

last

week.

And it was

great

to

i was even here in europe just last week and it was great to

see

Uh,

see the

The

quality

to

is

off

of

the

age

gen

genetic

systems,

right?

that I

are

just

qualities of the agentic systems right that are just

broadly

getting

the

deployed

right when you

live

over

out

the

ploy is

what

their

broadly getting deployed right when you deliver deploys

automated.

auto

tape

and

uh

you

what is their automated order taking and

know

trade

coupon uh

dispute

management

stuff.

trade coupon dispute management stuff

all

as

is

that

a

who

fully

me gently

cutless

system.

all as a fully agentic touchless system

Ah,

Rolls

Roy's

is

he's

to

deploy

is

the

a

system.

to

hear

manage all

of

rolls royce deploys a system to really manage

their

maintenance

or quite a

whatever

they

there.

are.

They're

did

chatting

engines

all of their maintenance or whatever their

with

30,000

in

parts.

a

pretty

calm

jet engines with thirty thousand parts

flag,

supply

chain

both

planning

a pretty complex supply chain

execution

and in

Vincentary

management

both planning execution inventory management system

system, you

know,

all

built on

farm

it

a gentle

systems.

all built on foundry agentic systems

Um

RBI

would

which

is

in

then

an awful

loss

lost

stream

bank, you

know,

showed

me

rbi which is an austrian bank

20

plus

business

for us to

he's

then

and to

two

handle

the

showed me twenty plus business processes end to end

Um, and

they

were talking about

like

where there

it's

info

for

credit

or

what have

and they were talking about like whether it's in

you. How

they

are

able

to

now

do

that.

so much

more

optimally

for credit or what have you how they are able to now do that

Right, so

the breath

the

quality,

they didn't

ability. Oh,

why the

way,

so much more optimally right so the breadth the quality

monkey

model

nature of

it,

right

They're

look

looked to

this

star

with

the

a

front

their ability oh by the way the multi model nature of

game

model.

Henry

of

them

in

fact,

they

the

is

unilateral

it right they look they start with a frontier model many of them

one

they

just

dropped

a

an

MAI

in fact the unilevel one they just dropped an mai model

model

trained

using

our

traces.

So

even

the

degree

of

so

fast

to

decay

should

or

of what

I

trained using our traces so even the degree of

think

off

of

as

model

up

optimization.

look.

workload

sophistication of what i think of as model optimization

optimization.

and

token

they

uh

workload optimization token optimization

What's

just

great to

see.

So the

breath,

is

starting,

finally

it

does

was just great to see so the breadth is starting finally it does

feel

like being able to

the

end

of

price

workloads.

They feel

like

to

me, you

know,

feel like the enterprise workloads they feel like to me you know like

like

the

data

does, you

know,

applications

and

a

the price

is

was

built

and

the

in

past that

I grew

up

the database biz you know applications enterprises built in the past that i grew up with

with.

There's

happening

now

when

it comes

to the

AI.

And in fact, if

you've

made you

some of

are happening now when it comes to ai and in fact if anything some of the

the

you

know

the

uh

there

are

the

Chinese

objects

stuff as

is waning,

Redwitch is

it's not

the the shiny object stuff

about the

next

big

thing

they're

really

more

about

wow, can

I

build

is waning right which is it's not about the next big thing they're really more about

the

a

system?

can

I

own

the

way

Can

I?

manage

wow can i build a system can i own the the weights

my

cost?

can

I have

a

the

lie

of

What

word

about

can i manage my costs can i have reliability what about

security?

And

so

security and so

in

that

sense,

the

end of

breath

motion

is

be

scaring.

but like

if

we

everything

else,

the

in that sense the enterprise breadth motion is starting but like everything else

enterprise

stuff

is

not

like

a

quarter of

a

corner. It's

a you

know,

a

decade

the enterprise stuff is not like a quarter over quarter it's a

long.

decade long

thing.

and

that's

what

I

been

waiting

for

as

opposed

post to

like

full

thing and that's what i've been waiting for

four

customers who

buy

a

lot

of

capacity

for

from

you

and

can

show

a

if you've

as opposed to like four customers who buy a lot of

corners

of

growth. And that's

not

a big

business. That's

why

I'm

concerned.

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

So

I

want

to

the

breath

we

are

well

positioned

on

the

i want the breadth we are well positioned on the breadth

brat.

And

can

we

have

you

know,

large

customers

who

want

to

buy

and we have large

for

from

us.

and we're

open

for

business where

with

it.

And

customers who want to buy from us and we're open for business with it and

as long

the

price you

is

right

we

may

sell

them

it in

some.

If

not,

we

as long as the pricing is right we may sell them some if not

will

be

patient

about

building

the

break

we will be patient about building the breadth of this

this.

I

Thank

you

marked

all

the

thanks mark

next

question for

operator next question please

me.

The next

question

comes

from

the

line

of

the next question comes

Gabriella

Borges

from the line of gabriela borges with

with

Glund

Sachs.

Please

goldman sachs please proceed

proceed.

Hi,

can

it

evening. Thank

you.

Slash I

want

one of

is

to stay

on

the

this topic

of

hi good evening thank you sacha i want to stay on the

brat

because

you

had

a

comment

in

the

prepared

room

where I'm

was talking

you

topic of breadth because you had a comment in the

about

how

any

i

can

now

be

comparable to

leading

prepared remarks talking about how mei can now be

models.

within

three to

six

months

of

if they are at

a

elite.

comparable to leading models within three to six months of their release

At the

same

time,

you

have

a

opening

it and

at

11%

of

Ruby

and

in the

course.

So maybe

just

to

take a

step

back

and

at the same time you have openai at eleven percent of revenue in the quarter so maybe just

get

give

us

your

latest

and

thinking.

on

how

you

think.

token

makes

and

some token

take a step back and give us your latest thinking on how you think token mix

value

is

as

going

we've

a

wall.

between

the

frontiers.

and

and token value is going to evolve between the frontier and mai

at

MAI, and

maybe

what's going to

some of

you

your marks

more

so

this

I don't

on a

price

cost

is a

are

doing from

some of

the

for

fighter

and maybe what some of your more sophisticated enterprise customers are doing from a

AI

strategies

that

proprietary ai strategy standpoint

happen.

Thank

thank you

you.

Yeah,

so

I

think

Job

yeah so i think

if

fact

I would

say

there

you

should

think

of

about

three

things.

or

perhaps

in fact i would say that you should think of three things perhaps as

as

in

the

tool

box

for

any

in the toolbox for any workload

workload.

The first

is

a

new

model

drops

and

that it's

got

some

great

the first is a new mono drops and it's got some great

performance

and you

will

want

you

can

eat

Max

on

whatever

that

matters to

you

performance and you want you can eval max

I need

the

outcome

that

matters to

you by

using

on whatever that matters to you i e the outcome that matters to you by using it

it.

People

should

use

it. We saw

that

with

some of

the

open

opening

AI

models

in

the

last

quarter.

people should use it we saw that with some of the openai models in the last

They were

fantastic

models.

and we're

obviously

very

true

about

the

pride

was open

opening

AI has

is

quarter they were fantastic models and we're obviously very thrilled about the progress openai has made

made.

with

that

Astra

and

also

what's

to

come.

And

I

felt

these

we saw

some

good

with astra and also what's to come and i

demand

on

that.

Then

in the

next

thing

people

do

is

thought we saw some good demand on that then the next thing people do

hey,

can

I

actually

put

money to

of

the

frontier

is hey can i actually put multiple of the frontier models

models.

Because

these

guys,

these

have very

different

prices. In

fact,

there's

this

morning

out

of

and

because these got these have very different prices in fact this morning

I

also

have

had

the

you

know,

what

I

think

is

the real

benchmark, which

is.

analysis had the what i think is the real benchmark which is

the

code.

courting

agents

uh

using

out

fusion

and I

think we

were

number

the coding agents using our

two

or number

three

there.

Which

is a

awesome

to

see.

Right, which

fusion and i think we were number two or number three there which is awesome to

is

you

can

now

get

frontier.

tipple

performance

45

I put

in

fast?

see right which is you can now get frontier performance

seven if I was

wasn't

in

forty five percent faster seventy five percent cheaper

cheaper.

Like,

why

don't

who

do we

law

to

not

take

that,

right if we

which is

like if

you're going

a

coding

agent, do

like why would who would want to not take that right which is like if you're a coding agent

the

user,

you

want

in

fact

and

for

throw

pick

and

open

AI

by the

way

to

user you want in fact anthropic and openai by

compete

for

your

work's

Not

like

once

a

the way to compete for your workload not like once

quarter,

but

for

every

task.

And

that

do

to

me

is

what

a quarter but for every task and that to me is what

the

value of

these

routers

and

uh

auto

uh

fusion.

the value of these routers and autopusion

staff for

forgot

routing

down then

we

are

very

excited about

it.

And

then

the

stuff routing does and we are very excited about it

last

thing

is an

other

important

one. A

lot

of

customers

are

saying,

hey,

and then the last thing is another important one a lot of customers are saying hey look

look,

did

the

unit

a

one,

right?

It's their

system.

They

were able

yeah, I'll

take the unilevel one right it's their system

ultimately

take

me

even

in

the

traces

off

to

the

having

done

it

they they will ultimately take even the traces after having done even

in

a

bunch

with

Frontier.

models

And

did

just want

to

create

their

own

model.

So

it

could

can

be

open

a bunch with frontier models and they just want to train their own model

weights

or

in

this

case,

it

was

MAI

so it can be open weights or in this case it was mai model

ball.

And

so

I

think

all

of

that

needs to

be

as

opposed

and so i think all of that needs

that

are

available.

And

then

you

on

to be as options that are available

price

thing, depending

on

the

need.

of

the

and then depending on pricing depending on the need of the

customer, they

will

exercise

it.

And there's a

temporality to

it's

you

never

like

a

oh,

I

start

customer they will exercise it and there's a temporality to it it's never

one

place

and

that's

where

I

stop.

right?

It's like I'm

a

mean, it

starting

of the

front

frontier.

like oh i start one place and that's where i stop right it's like i may start

I may

mean,

a

go

to

an

open

weight, I

mean

may go

to an

MAI

model. I

mean,

go

back to

the

the frontier i may go to an open weight i may go to an mai model

front

for

the

next

drop

for a

few

months.

come

out like

i may go back to the frontier for the next drop for a few months

that's

how

I

see

think

the

how

dying

these

words

workers

come out like that's how i think the how

are a

and that's

dynamic these workloads are and that's where

where

when

we

think

about

falling

or

when

we think

about

sab rich or

of these

we think

about

copy

and

get

up

when we think about foundry or when we think about fabric or when we think about copies

a

to

copy.

We

really

want

to

build

a

model

system

that

and github copilot we really want to build a model

delivers

customers

value.

Continue

system that delivers customers value

what

was

is, you

know?

get

you

know band

I'm

being

continuously versus you know them being

stopped in any

stuck in any one thing

one

thing.

And

if you

there's

the

a

get

your real

thank you for the thanks gabriela

Rayleigh.

estate.

all

for

braids

that

the next

question

operator next question please

please.

the

next

question

comes

from

the

line

of

the next question comes from the line of brent

Brent

Phil,

who

with

Jeffreys.

please

thill with jefferies please proceed

proceed.

Thanks,

a

uh,

Amy

good to

see

you

uh

as

your

you're

approaching

thanks amy good to see azure approaching

fifty

You have

another

line

item.

approaching

50

in

that

that's

your

fifty percent you have another line item

operating

approaching fifty percent and that's your operating margin

margin.

I

think

many

ask

you

know,

how could

can

you

use

sustain

this

level

of

growth

i think many ask how can you sustain this level of growth with

with

a

fifty

and a

the

in

top, and a 50 in the

bottom.

Maybe you

can

a fifty in the top and a fifty in the bottom maybe you can discuss

discuss.

the

operational

improvements

you

can

continue to

put

forward

operational improvements you continue to put forward

the

main

thing

that

high

level

on

the

bottom

to maintain that high level on the bottom line

line.

And

thanks

for

that.

Um

what

me try

first

thanks

say

brent let me first say

uh

the

different.

the

past

solution

here

is

revenue

best solution here is revenue growth

growth.

And

so

I

would

say, I

can't

just start

and

in focus

there

even

though

I

think

many

and so i would say i tend to start and focus there even though

people

think

to

that they

I

start at

the

bottom of

the

P and

work

up.

The right

answer

is

you have

think many people seem to think i start at the bottom of the p and l and work up

always

start at

the

top of

P and

work

down.

the right answer is you always start at the top of the p and l and work down

And

so

what

we

we've been

focused

focus

on

and

I

think

really

it's

almost

inherent

in

and so what we've been focused on and i think really it's almost inherent in

and

all

of

the kinds

common

all of the commentary

is

is

we

changed

segments of

for

because

we're

changing

how

we

deliver

product and

services to

we change segments because we're changing how we deliver products

customers.

We're changing

it

because

we're delivering

new

and

different

products for

with

a lot

and services to customers we're changing it because we're delivering new and different products

a

lot

of

value in

them.

And

there's

a

products

are

far

more

with a lot a lot of value in them

integrated

than

they

were

and those products are far more integrated than they were before

before.

I

think

we

when

you

see

that

revenue,

it

i think when you see that revenue accelerate

accelerated.

at

the

top of

line

of

course, it

does.

at the top line of course does

you

a

pretty

healthy

way.

can figure

to

pause

the

margin.

And part of

in a pretty healthy way contribute to positive margin

the

pause

positive

Morton

is

dollars which I

think

need

people

to

also

focus

and positive margin dollars which i think i need people to also focus on

on.

The

that

second

piece

is

the second piece is

um

this

there's

world

real

focus

on

a

fish

and

because

if

fish

and

sea,

when

we

say

the

word,

I

think

people

believe

there's real focus on efficiency because efficiency when we say the word i think

it's

cost

related

people believe it's cost related

The

outcome

is going to

cross

but

there

the

real

the outcome is cross related but the real

benefits

of

the

a

fish

is

to

build

benefit of efficiency is stability

it's

security.

It's

a lot of

on building.

If

that

it

delivers

the

highest

it's security it's reliability it's that it delivers the highest

quality

quality unit

unit.

at

the

lowest

possible

cost.

And so

it's

the

operation on

not

at the lowest possible cost and so it's operational excellence

excellence.

as we

I

think

when

you

think

about you

and so i think when you think about you can

can

feel

deliver

product

excellence, which

is

what

we're

really

focused

on. I

think

we

did

a

very

good

job

on

deliver product excellence is what we're really focused on i think we did a very good job on product

product.

quality.

quality

in

the

past

quarter,

which

I

think

teams

should

be

proud

of and

lots of

in the past quarter which i think teams should be proud of in lots of places

places.

I

think

then

you

have

this sort

of

operational

focus

on

improvement.

i think then you have this sort of operational focus on improvement

And

then

it

is

a

real

focus.

in

terms

of

operating

and then it is a real focus in terms of operating expense

extent.

To make

sure

it's

go

going

toward

building

the

new

to make sure it's going toward building the new thing

thing.

or

providing

security

and

quality.

And I

think

that's we've

made

a

or providing security and quality and i think that's

very

active

choice

to

be

really

focused

on

those

two

things,

we've made a i think a very active choice to be really focused on those

especially

in

the

this

environment.

And

how

important it

is.

And

two things especially in this environment and how important it is

I

think

we

when you

do

those

and i think when you do those things

things,

then

you have

happen to

be

in

a

good

market

with

breaths

and

bread

think

thing

and

and you happen to be in a good market with

customers

and

a good

global

breadths and breadth in customers and a global business

business.

We

We've

seen

a

good

result.

This

quarter

and

in

particular

you

know,

when

we've seen a good result this quarter in

you

you're

deliver and

a

lot

of

efficiency

games

and

that a

the

quarter,

particular when you're delivering a lot of efficiency gains in a quarter

and

you

can

deliver

brab

new

for

and you can deliver revenue growth

growth.

without

spending a

it

additional

costs.

You of

course

see

a

benefit,

which

we

without spending additional costs you of course see a benefit which we did

did.

but

I

feel

good about

what's going

behind

that

number,

which

is

I

think,

a

focus

but i feel good about what's behind that number which is i think a focus

on

the

right

on the right levers

letter.

in two

Thanks for

you, Brian.

having all for

watching,

next

neck

question

thanks brent operator next question please

system

please.

Are you watching?

I think

I'm not

Oh

Yeah.

Now

we should be able

blah.

say that?

I

yeah.

but

The

update this.

I'm not sure.

a

See

Does

mean that

the

all.

That

I

it packed

very good

it's a good

in.

not sure.

I think

yeah.

did it

for

not

laugh?

Peter.

if

that's the same thing.

I

Oh,

at

hello

you

know it?

be

We

are

high.

maia hi

of

Don't

about

not the

this

use for the

naked

here about

of

oh apologies for today sorry about pardon

up.

art.

our

next

question

in

I'm

on

is

from

the line

of

Brad

R

Reback

with

our next question comes from the line of brad reback with stifel

people.

Green, the

sir,

sorry

about

that. I

did

not

hear

my

great sorry about that i did not hear my name

name.

On

M365

can

some shit.

when

you

all

shifted

get

on m365 consumption when you all

git

hub

from

a

per se

seat

model

to

a

consumption

shifted github from a per seat model to a

model that

and

it

unlocked

the

a ton

of

revenue

growth

for

you

y'all.

As

you

consumption model it unlocked a ton of revenue growth for y'all

think

as you think about

about

the

tools

in

place,

now,

unlocked

i

I'm a

function

side for

the

the tools in place now unlock

core

and

free

you to five

customer.

Do you

on the consumption side for the core m365 customer

think

the

unlock

is

fast

and

without

cells

effort

or

is it going to

do you think the unlocks is fast and

take

a you

know

a

fair amount of

of

effort to

get

those

without sales effort or is it going to take a fair amount of

meters

spinning.

effort to get those meters spinning thanks

Thanks.

You are

thanks

for

the

a

question

I

think

all

on

the

code.

holding

yeah thanks for the question i think on

on the coding side

side

um

it's

it will

be

faster

just be

because

I

think

people

it will be faster just because i think

are

like

used

to

paying

uh

the

on

this

big

pay

goal

people are used to paying

as

the

sort

of

the

general

market.

on this pay go as the sort of the general market

and how it

works.

Anybody needing

hopefully, you

know,

some of

the

things

that

we

be

announced

even

and how it works and if anything hopefully

want to

get

up

you

know,

Day

with

uh

you know some of the things that we announced even at github universe today with fusion

fusion.

our

more

motor

attractive

way,

right

Because

you

even

if

you

think

about

it,

Reddy,

buy

are a more attractive way right because you even

a

bunch

of

credits

and

you

want

to

use

those

credits

most

if you think about it right you buy a bunch of credits and you want to use those credits most

efficiently. That's

the

problem is

a kid

get

up

uh,

co-pilot

and

fusion.

So we

are

very

efficiently that's the promise of github copilot fusion

optimistic

about

making

progress

on

that.

And

then

when

it comes

so we are very optimistic about making progress on that

to

core

island

and

it's

it

itself,

right?

we are

trying

and then when it comes to copilot it's

to

make

sure

that

we

in

need

some

itself right we are trying to make sure that

sense,

are

driving

more and

more

value

into

the

we in some sense are driving more and more value into the

subscription.

With every

model

drop

and

essentially,

comes

subscription with every model drop and essentially

the

front

frontier.

gains for

or broad

deployment.

And in

consolidating the frontier gains for broad deployment

many

instances,

I

as

my

remark

said,

I

IT

do funds

this,

right as

the

thing

that

and in many instances as my remarks said it funds that

you

want

to

have

standard

issue

across

the

board.

And if

the same

right as the thing that you want to have standard issue across the board

time,

you

will

have

your

uh

pay

and at the same time you have your

as

you

she

go or

consumption

meters

uh

for

places

where

you need

it

pay as you go or consumption meters for places where you need it

And

so

both

of

those

options

are

open and

I

think

that's

and so both of those

why

the center of

you

know

in

with

this

the

co-pilot, we

options are open and i think that's why the in

the

they mean

need

reference

which

is

copilot namely referenced which is we are

where

are

trying

to

make

sure

that

the

customers

on

the

sandbox

options.

they're able

to

use

the

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.

You don't want

them

to

the two options in the optimal way that benefits them

over

all go

by what's going

they're

one

I'm

thing and

then

feel

like

the

that

their

token

we don't want them to overbuy one thing and then

maxing

thing

because

that

doesn't

serve

anybody's

purpose.

We

feel like they're token maxing because that doesn't serve anybody's purpose

want

to make

sure

that

they

are

understand the value

of

the

this

subscription.

we wanna make sure that they understand the value of

And

how

we

is

it

a

continual

improving

value is

not

the subscription and how it is a continually

even

static.

And at

the same

time,

you

can

exercise

improving value it's not even static and at the same time you can exercise this

this

consumption

meter and

so

that's

a

good

little bit of

the

degree

so

in

both

consumption meter and so that's a little bit of the degree of

our

sales

music,

even

a

customers

on

the

standing

that I

think

coming

to

in both in our sales motions even in customers' understanding that i think

together.

We

feel

very

to

about the

progress, but a

lot

more to

coming together we feel very good about the progress but a lot more to do

do.

And I think I would

say

it's

also

why.

um

we need

made

it

the

investment

and i think i would say it's also why

and

in

two

the

frontier.

company

here.

we've made the investment into the frontier company here

Couples

with

changes

in

our

sales

motion and

which I talked

talk a little

bit

about

coupled with changes in our sales motion which i talked a little bit about

you

know,

We

need

both of

those

things

to

make

sure

cost

are.

because what

I think

Sabbath is saying

I think

we need both of those things to make sure customers are

we

want

them to

what i think safi we them to utilize

utilize.

both

the

co-pilot

license to

its

full

both the copilot license to its fullest

fullest

and

understand.

when

the

conception of

meter

is

delivering

value

to

them.

and understand when the consumption meter is delivering value to them

they end

investment

in

the

SDE

organization of

the

frontier.

code.

the investment in the fte organization or the frontier core

tour.

how it

it's well

as

new

motions

with

within

our

modern

work

and like

a

co as well as new motions within our modern

this

Southeast

65

sales

teams.

or

both

meant

to

do

work in microsoft three sixty five sales teams

that.

And I

think this

is

stock

like a

point, it

will,

be

a

are both meant to do that and i think to satya's point it will be a

slower

slower.

move.

on at

outside of

code.

uh but

I

also

still

move outside of coding

think

we're

still

seeing and

encouraging

science

and

uh

and

but i also still think we're still seeing encouraging signs

I

I'm

I

feel

still

positive about

i feel positive about that

that.

Thank

thank you

you.

it.

Thanks for

Mr.

add

over

the

the

we

have

are telling

for

one

last

thanks brad operator we have time for one last question

question.

but

the

next

question

will

come

from

the

line

the next question will come from the line of

of

Tao

Rey

tal liani

with

bank of the

with bank of america

America.

Please

please proceed

proceed.

Hey,

um

just

going

if

and get

you

vication

and

on something in the

you

just

hey

said. Did

you

disclose

the

co-pilot

numbers this

to

just clarification on something you just said did you disclose the co pilot numbers this quarter

quarter?

but

my

question

is

more

about

the

capital

commitment or

the

but my question is more about the capital commitment or the

capital

strategy. You

said in

the

preferred

remarks

capital strategy you said in the prepared remarks that

that

you

would

will

approach

raising

capital

if

need

be in

the

few

future.

Can

you

discuss

your

you will approach raising capital if need be in the future

strategy

around

it

between

death

and

equity

and

other

can you discuss your strategy around it between debt and equity and other sources

sources.

How do

you

intend

to

raise

capital

if

need

how do you intend to raise capital if need be

be?

thanks

Thanks.

Great,

I'll

take

that

Was

my

I

think we're going

what

said

is

just

if

great i'll take that i think what i said is if

um

in

you.

it's

been

a

tractor

and

make

sense.

We're

lucky.

We have a lot

of

if it's attractive and makes sense we're lucky

flexibility

in terms

of

our

capacity.

to

we have a lot of flexibility in terms of our capacity

raise the

me out

I'm saying

I've talked

about

this

before.

um

There's

a

to raise financing i've talked about this before

form

farm of

fancy

called

Lee

DeSing

and

we've

been

using

that

one.

as

it

a

DHIC

there's a form of financing called leasing and we've been using that one as a vehicle

There's

also

where

we're

fortunate to

have

access

in

the

debt

there is also we're fortunate to have access in the debt markets

market.

given

that

we're

a

reading some of

so

are

and

sort

given that where our rates

of

we

have

it

been

able

to.

and we have

haven't

yet I

would

ratings are and sort of we haven't been able to and we haven't yet

say.

taps

that.

and

then

of

course,

there's

other

options,

i would say tapped that and then of course there's other options but

but

I

think

you're all

the way I

see

it

is

we're

feeling

good that

we're

a free

cash

flow

i think the way i see it is we're feeling good that we're free cash flow

positive. We

feel

good

that

the

return on

every

dollar

of

capex we're

spending

more

we're

confident

in

positive we feel good that the return on every dollar of capex we're spending we're confident in that

that.

And

therefore,

we

feel

like

we

have

lots

of

options.

to

be able

to

tap

and therefore we feel like we have lots of options

this

in

markets

when

they

make

sense and

they're

to be able to tap the financing markets when they make sense and they're attractive

attractive.

And

we

did

not

disclose

answer

to direct

question

of

update

on

the

code.

and we did not disclose to answer your direct

number of

this

quarter, we

talked

about the

momentum

in

revenue

and

question update on the co pilot number this quarter we talked about momentum

use

in revenue and usage

usage.

like it is

Bye,

him

thank you thanks hal

tell.

now,

L.

that's

stuff up and

the

you

Q A

portion

of

today's

earnings

that wraps up the q and a portion of today's earnings call

call.

Thank

you for

joining

us

today, and

we

look

forward

to

speaking

with

you

the

all

of

you

thank you for joining us today and we look forward to speaking with you all of you soon

soon.

You're

you

you.

you're not going to be able to do

can

But

are

you,

this

can't

close

today's

conference.

You may

just

disconnect

your

lines

up this

as

thank you this concludes today's conference you may disconnect your lines at this time

time

and

we've

thought

you

for

your

and we thank you for your participation

participation.

him?

I

I'm going to go to the next

I

so

no

middle,

it's just

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come

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and

I'm going to go to the next

that

on

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not sure.

we have

but I need

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But

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conference center how can i help

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So, I think it's a very good

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to

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The drone bar.

is

have

do that.

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On

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it tells

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rare.

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the

NCOM

conference

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It's ever.

have

that's not a

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think

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be.

actually

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do

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come

to

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end

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But

will be

you

I

go

don't

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to

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in

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Lake.

The sea and

in the

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Yeah, it's not.

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guys

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and the

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people are driving me crazy

crazy.

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that's

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sure.

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so

Well

but

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I think that's the

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I'm really just

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No

come

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I think it's

the

that.

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Yeah,

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Yeah,

You got to

Yeah,

It's a bit

Yes,

Yeah, I'm not sure.

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conference

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yeah, it's

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it's a good

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Well come

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Yeah, I would go and do

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to

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An

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And

right.

sure.

yeah,

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know.

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