The Positives
+ Azure maintained solid growth. In 2Q24, Intelligent Cloud segment revenue grew 20% YoY to US$25.9bn led by Azure and other cloud services. Azure revenue grew 28% YoY in constant currency, beating the company’s guidance range of 26% to 27% YoY growth. Management highlighted that the generative AI applications built by enterprises on Azure’s infrastructure started scaling up leading to higher usage and revenue growth. AI provided a 6% uplift to Azure’s growth in 2Q24 vs 3% in 1Q24 and was largely made up of inference workloads instead of training. Also, the number of Azure AI customers increased to 53,000 (vs 18,000 in 1Q24) and one-third of that number represents customers new to the Azure platform within the past year suggesting early traction.
+ Strong demand for Office 365 continues. Office 365 Commercial revenue (under productivity and business processes) grew by 16% YoY, in line with the company guidance. Consistent with previous quarters, user growth and higher average revenue per user due to E5 upsell at renewals continued to drive this business segment. Paid Office 365 Commercial users grew by 9% YoY to more than 400mn driven by demand from small and medium businesses and frontline worker offerings.
+ Margins continue to improve. In 2Q24, Microsoft reported an operating margin of 44% (vs 39% in 2Q23) despite elevated AI investments and the impact of the Activision acquisition. The margin improvement was mainly due to top-line upside and continued focus on higher operating leverage through disciplined cost controls (headcount down 2% YoY).
The Negatives
– Nil.