Microsoft turning away AI training workloads – inferencing makes better money
(2024/10/31)
- Reference: 1730359507
- News link: https://www.theregister.co.uk/2024/10/31/microsoft_q1_fy_2025/
- Source link:
Microsoft has explained that its method of funding the tens of billions it's spending on new datacenters and AI infrastructure is to shun customers who want to rent GPUs to train new AI models.
CEO Satya Nadella revealed that strategy on Wednesday during the software behemoth's Q1 2025 earnings call, during which execs detailed how the biz landed quarterly revenue of $65.6 billion and net income of $24.7 billion, improvements of 16 and 11 percent respectively.
Microsoft's Intelligent Cloud segment, which covers server products and cloud services and is Redmond's biggest single source of cash, saw revenue grow 20 percent year on year to reach $24.1 billion. Azure and other cloud services grew by 33 percent. Azure Arc – the multi-and-hybrid-cloud management tool – was called out for having won 39,000 customers.
[1]
AI was of course to the fore on the earnings call, with Nadella pointing out Microsoft's AI biz is on track to track $10 billion annual run rate next quarter. That would make it the fastest new product to do so in Microsoft history.
[2]
[3]
Investment analysts invited to ask questions during the call were curious to know how Microsoft is paying for the massive infrastructure build – $20 billion this quarter alone, most of it on datacenters and servers – required to deliver AI services. Nadella and CFO Amy Hood told a story of supply chain delays making it sometimes hard to bring new infrastructure online to satisfy demand, and impacting margins. But when new AI capacity comes online, increased revenue follows.
We love security – honest In the wake of Microsoft's many recent security woes, Nadella assured investors "We continue to prioritize security above all else" and Microsoft has therefore "dedicated the equivalent of 34,000 full-time engineers to address the highest-priority security tasks."
"We have made significant progress to better protect tenants' identities, networks, and engineering systems, and we have created new processes to ensure security is prioritized at every level of the Company," he added.
And then he said the things Microsoft learns during that effort are becoming "innovations across our products" – and did a little spiel about new security products.
Another way Microsoft is managing things is by turning away training workloads.
"We're not actually selling raw GPUs for other people to train," Nadella said. "In fact, that's sort of a business we turn away because we have so much demand on inference" to power the various Copilots and other AI services.
"We kind of really are not even participating in most of that because we are literally going to the real demand, which is in the enterprise space or our own products like GitHub Copilot or M365 Copilot. So, I feel the quality of our revenue is also pretty superior in that context," Nadella added.
[4]
CFO Amy Hood added that Microsoft sees revenue won from inferencing as generating the funds to pay for future model training efforts.
But while focusing on inferencing may be a cunning plan, it's not helping to control costs – despite Microsoft's best efforts they rose 12 percent in the quarter. Even though some of that increase was due to Activision staff coming aboard, overall headcount rose two percent.
Most of Microsoft's business lines all posted solid growth: ten percent for LinkedIn; 14 percent for Dynamics; Xbox by 61 percent (thanks to the Activision acquisition); and search and advertising by 17 percent. Microsoft 365 commercial revenue grew 13 percent and consumer popped up five points.
[5]
But Windows OEM and device revenue dipped by two percent – and was forecast to do so again.
If that worries Microsoft's leaders, they didn't show it. And they had plenty of other wins to celebrate, reeling off names of blue chip companies that have put Microsoft's AI offerings to work. CFO Hood also pointed to "growth in the number of $10 million-plus contracts for both Azure and Microsoft 365" and "an increase in the number of $100 million-plus contracts for Azure."
[6]Microsoft accuses Google of creating a lobbying front called 'Open Cloud Coalition'
[7]Satya Nadella asked for 50% cut in his incentive payout over security failures
[8]Microsoft reshuffles execs in Europe, Middle East and Africa unit
[9]Is Microsoft's AI Copilot? CoPilot? Co-pilot? MVP creates site to help get it right
All those wins have left Microsoft with $259 billion of future revenue to which customers have already committed. And the tech leviathan predicted strong growth in most of its major product lines, with Azure expected to grow at 31 or 32 percent, and Productivity and Business Processes wares to grow by ten to eleven percent.
It did, however, warn of some small future dull spots. One is a likely dip in revenue from on-prem server product revenue. But that's not a sign of decline – rather a reflection of the fact that this time last year Redmond was in the last weeks of selling long-term support for Windows Server 2012.
Similarly, a forecast slight fall in Microsoft 365 revenue was explained away as cyclical.
Microsoft's shares spiked from around $435 to $442 in after-hours trading, before settling at around $417 – seemingly a sign that investors hoped for better news on costs, but were comforted that AI is paying off. ®
Get our [10]Tech Resources
[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://www.theregister.com/2024/10/29/open_cloud_coalition_microsoft_google/
[7] https://www.theregister.com/2024/10/28/satya_nadella_security/
[8] https://www.theregister.com/2024/10/28/microsoft_reshuffles_execs_in_emea/
[9] https://www.theregister.com/2024/10/28/microsft_branding_correction_site/
[10] https://whitepapers.theregister.com/
CEO Satya Nadella revealed that strategy on Wednesday during the software behemoth's Q1 2025 earnings call, during which execs detailed how the biz landed quarterly revenue of $65.6 billion and net income of $24.7 billion, improvements of 16 and 11 percent respectively.
Microsoft's Intelligent Cloud segment, which covers server products and cloud services and is Redmond's biggest single source of cash, saw revenue grow 20 percent year on year to reach $24.1 billion. Azure and other cloud services grew by 33 percent. Azure Arc – the multi-and-hybrid-cloud management tool – was called out for having won 39,000 customers.
[1]
AI was of course to the fore on the earnings call, with Nadella pointing out Microsoft's AI biz is on track to track $10 billion annual run rate next quarter. That would make it the fastest new product to do so in Microsoft history.
[2]
[3]
Investment analysts invited to ask questions during the call were curious to know how Microsoft is paying for the massive infrastructure build – $20 billion this quarter alone, most of it on datacenters and servers – required to deliver AI services. Nadella and CFO Amy Hood told a story of supply chain delays making it sometimes hard to bring new infrastructure online to satisfy demand, and impacting margins. But when new AI capacity comes online, increased revenue follows.
We love security – honest In the wake of Microsoft's many recent security woes, Nadella assured investors "We continue to prioritize security above all else" and Microsoft has therefore "dedicated the equivalent of 34,000 full-time engineers to address the highest-priority security tasks."
"We have made significant progress to better protect tenants' identities, networks, and engineering systems, and we have created new processes to ensure security is prioritized at every level of the Company," he added.
And then he said the things Microsoft learns during that effort are becoming "innovations across our products" – and did a little spiel about new security products.
Another way Microsoft is managing things is by turning away training workloads.
"We're not actually selling raw GPUs for other people to train," Nadella said. "In fact, that's sort of a business we turn away because we have so much demand on inference" to power the various Copilots and other AI services.
"We kind of really are not even participating in most of that because we are literally going to the real demand, which is in the enterprise space or our own products like GitHub Copilot or M365 Copilot. So, I feel the quality of our revenue is also pretty superior in that context," Nadella added.
[4]
CFO Amy Hood added that Microsoft sees revenue won from inferencing as generating the funds to pay for future model training efforts.
But while focusing on inferencing may be a cunning plan, it's not helping to control costs – despite Microsoft's best efforts they rose 12 percent in the quarter. Even though some of that increase was due to Activision staff coming aboard, overall headcount rose two percent.
Most of Microsoft's business lines all posted solid growth: ten percent for LinkedIn; 14 percent for Dynamics; Xbox by 61 percent (thanks to the Activision acquisition); and search and advertising by 17 percent. Microsoft 365 commercial revenue grew 13 percent and consumer popped up five points.
[5]
But Windows OEM and device revenue dipped by two percent – and was forecast to do so again.
If that worries Microsoft's leaders, they didn't show it. And they had plenty of other wins to celebrate, reeling off names of blue chip companies that have put Microsoft's AI offerings to work. CFO Hood also pointed to "growth in the number of $10 million-plus contracts for both Azure and Microsoft 365" and "an increase in the number of $100 million-plus contracts for Azure."
[6]Microsoft accuses Google of creating a lobbying front called 'Open Cloud Coalition'
[7]Satya Nadella asked for 50% cut in his incentive payout over security failures
[8]Microsoft reshuffles execs in Europe, Middle East and Africa unit
[9]Is Microsoft's AI Copilot? CoPilot? Co-pilot? MVP creates site to help get it right
All those wins have left Microsoft with $259 billion of future revenue to which customers have already committed. And the tech leviathan predicted strong growth in most of its major product lines, with Azure expected to grow at 31 or 32 percent, and Productivity and Business Processes wares to grow by ten to eleven percent.
It did, however, warn of some small future dull spots. One is a likely dip in revenue from on-prem server product revenue. But that's not a sign of decline – rather a reflection of the fact that this time last year Redmond was in the last weeks of selling long-term support for Windows Server 2012.
Similarly, a forecast slight fall in Microsoft 365 revenue was explained away as cyclical.
Microsoft's shares spiked from around $435 to $442 in after-hours trading, before settling at around $417 – seemingly a sign that investors hoped for better news on costs, but were comforted that AI is paying off. ®
Get our [10]Tech Resources
[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZyNjWNJudNbAEDmQc2zOzgAAABI&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://www.theregister.com/2024/10/29/open_cloud_coalition_microsoft_google/
[7] https://www.theregister.com/2024/10/28/satya_nadella_security/
[8] https://www.theregister.com/2024/10/28/microsoft_reshuffles_execs_in_emea/
[9] https://www.theregister.com/2024/10/28/microsft_branding_correction_site/
[10] https://whitepapers.theregister.com/
"we are literally going to the real demand"
Pascal Monett
Who are you to decide what the real demand is ?
You have customers, and apparently a lot of them, willing to pay for your services. You take the money and do the job.
Re: "we are literally going to the real demand"
Doctor Syntax
"You take the money and do the job."
This is Microsoft. Only the first part is necessary.
Re: "we are literally going to the real demand"
Dave Null
they choose what they sell and they are selling the mature solutions with highest demand. The market will decide if this is the right decision. MS have no responsibility to do everything every customer asks, they build SKUs and sell them...
Zippy´s Sausage Factory
"We're not actually selling raw GPUs for other people to train," Nadella said. "In fact, that's sort of a business we turn away because we have so much demand on inference"
I'm twitching here... isn't that basically saying they don't want anyone to use their hardware to train a product that might compete with one of theirs? Not sure that's actually breaching any sort of law, but it's definitely on brand for Micros~1.
Doctor Syntax
"Investment analysts invited to ask questions during the call were curious to know how Microsoft is paying for the massive infrastructure build "
And the answer is...? AFAICS they didn't get one.
Funds to pay for future model training efforts.
I'm sure the Question to the Ultimate Answer will be worth the wait.