Microsoft Omits the AI Progress Report Investors Wanted

If artificial intelligence is going to live up to the hype, Goldman Sachs analysts said recently, the excitement stage of AI needs to shift drastically this year into a period of meaningful deployment. ChatGPT is cool, but its limited utility is a long way from justifying the billions of dollars invested in pushing the technology forward.

If there’s money to be made in AI, there’s a very good chance it will show up on Microsoft Corp.’s income statement first. Investors are looking for any reassurance that things are going according to plan, making Chief Executive Officer Satya Nadella’s appearance during the company’s earnings call on Tuesday a closely followed affair. Unfortunately, the audience was left wanting, and shares slipped about 1% in after-hours trading.

As I discussed in an earlier column, Microsoft’s strength and soaring valuation have come on the back of it being the most diversified of the big tech players. But what hurled it into the $3 trillion club — where it stands alone now, though not for long if Apple Inc. can impress shareholders when it reports its results on Thursday — was the promise of turning AI functionality into revenue, a boost that would be felt across many of its business areas, not least its Azure cloud-computing unit.

While acknowledging the real top-line growth could still be some time away, this hasn’t stopped investors clamoring for any indication that progress is at least on track. This isn’t just because they care about Microsoft but because the company has become a bellwether. So strong is the company’s leadership position, as RBC Capital Markets analyst Rishi Jaluria put it, “It’s too early to be modeling revenue contribution from GenAI before 2025 for any software company not named Microsoft.”

There were encouraging crumbs, at least. “A growing body of evidence makes clear the role AI will play in transforming work,” Nadella told investors on Tuesday. “We’ve moved from talking about AI to applying AI at scale,” he added, stopping well short of offering any concrete predictions about sales growth in the year to come. Chief Financial Officer Amy Hood told Bloomberg that “AI boosted Azure’s growth rate by 6 percentage points” — though one analyst noted growth of the rest of the Azure business continued to slow.

Perhaps next quarter will prove to be more revealing. One key barometer will be the addition of AI to Office 365. The software suite — which contains Microsoft staples such as Word, PowerPoint and Excel — has been souped up with premium AI features named CoPilot Pro. Introduced at the beginning of November, the enhancements were first made available only to companies prepared to commit to having at least 300 users, each paying an extra $30 a month on top of their existing Office 365 plan. In January, Microsoft opened it up to every business customer, no matter the size. It means there hasn’t yet been a quarter of full availability. Still, investors were hoping for some insight into how enthusiastic businesses had been in getting on board so far. They didn’t get it.