Microsoft CFO Amy Hood sent an internal memo to employees following the company’s second-quarter earnings report, emphasizing the tech giant’s aggressive AI strategy and record-breaking investments. The memo, which Hood sends quarterly after financial disclosures, highlighted several key AI developments that Microsoft executives consider critical to the company’s future.
Microsoft exceeded Wall Street expectations with 17% revenue growth and 21% operating income growth, marking a strong finish to the first half of fiscal year. Microsoft Cloud revenue surpassed $50 billion for the first time, growing 26% year-over-year. However, the most striking figures relate to the company’s AI ambitions.
Commercial bookings skyrocketed by 230% year-over-year, driven primarily by previously announced Azure commitments from OpenAI and Anthropic, two leading AI research companies. These partnerships represent Microsoft’s deepening involvement in the generative AI ecosystem, with OpenAI being the creator of ChatGPT and a long-time Microsoft partner, while Anthropic develops the Claude AI assistant.
Capital expenditure reached a record $37.5 billion in the quarter, invested in GPUs, CPUs, and datacenter infrastructure to support growing Azure demand. This massive investment reflects the enormous computational requirements of AI workloads and Microsoft’s commitment to maintaining infrastructure capacity for products like Microsoft 365 Copilot and GitHub Copilot.
Hood specifically called out the launch of the GitHub Copilot software development kit (SDK) in the expanding market of AI coding tools. GitHub Copilot, an AI-powered code completion tool, has become increasingly popular among developers, and the SDK release allows third-party developers to build on top of the platform.
The memo also highlighted the release of Microsoft’s new Maia 200 AI chip, announced just days before the earnings call. This custom silicon represents Microsoft’s effort to reduce dependence on third-party chip manufacturers like Nvidia and optimize performance for its specific AI workloads.
Azure and other cloud services revenue grew 39%, with Hood noting that “customers are running larger, more complex workloads with us and increasingly integrating AI into the core of how they operate.” Microsoft 365 commercial cloud revenue grew 17%, with increasing contributions from strong Copilot results. The company also announced it crossed one billion Windows 11 users globally.
Key Quotes
Commercial bookings, which best represents the amount of business we closed in the quarter, increased 230% and 228% in constant currency driven by previously announced Azure commitments from OpenAI and Anthropic, with healthy growth across our core annuity businesses.
CFO Amy Hood highlighted this extraordinary growth figure in her internal memo, demonstrating how strategic partnerships with leading AI companies are translating into massive business wins for Microsoft’s Azure cloud platform.
We invested $37.5 billion in capex on GPUs, CPUs, and datacenter infrastructure to support growing Azure demand, expanding first-party AI usage from products like M365 Copilot and GitHub Copilot, and to increase the capacity available to our R&D teams for product innovation.
Hood emphasized this record-breaking quarterly investment, signaling Microsoft’s commitment to building the infrastructure necessary to support both customer AI workloads and its own AI product development.
Customers are running larger, more complex workloads with us and increasingly integrating AI into the core of how they operate.
This statement from Hood’s memo reveals how enterprise customers are moving beyond AI experimentation to making artificial intelligence central to their business operations, driving sustained demand for Microsoft’s cloud services.
We’re operating in markets with expanding TAM where we continue to gain share and you can see our progress in many places, from last week’s announcement of the GitHub Copilot SDK to Monday’s Maia 200 announcement.
Hood connected Microsoft’s market share gains to specific AI product launches, emphasizing how the company is capitalizing on the expanding total addressable market created by AI adoption across industries.
Our Take
Amy Hood’s memo reveals Microsoft’s comprehensive AI strategy that extends far beyond simply partnering with OpenAI. The company is simultaneously securing massive cloud deals with multiple AI leaders, developing proprietary AI chips, expanding AI coding tools, and investing unprecedented amounts in infrastructure. This multi-pronged approach positions Microsoft to capture value regardless of which AI applications ultimately dominate the market.
The 230% bookings growth is particularly noteworthy because it demonstrates that AI companies need Microsoft as much as Microsoft needs them—these aren’t just technology partnerships but massive commercial commitments. The $37.5 billion quarterly capex figure is staggering and unsustainable long-term, suggesting we’re in an AI infrastructure arms race that will eventually consolidate. Microsoft’s Maia chip development indicates the company recognizes this and is working to improve unit economics. The emphasis on GitHub Copilot SDK suggests Microsoft understands that developer adoption is key to long-term AI platform dominance.
Why This Matters
This memo provides crucial insight into Microsoft’s AI strategy at a pivotal moment in the technology industry’s evolution. The 230% surge in commercial bookings driven by OpenAI and Anthropic deals demonstrates how AI partnerships are becoming massive revenue drivers for cloud infrastructure providers. Microsoft’s position as the primary cloud provider for leading AI companies gives it significant competitive advantage in the AI race.
The record $37.5 billion quarterly capital expenditure underscores the enormous infrastructure investments required to support AI workloads, setting a new benchmark for the industry. This spending level reflects both the computational intensity of training and running large language models and the fierce competition among tech giants to secure AI computing capacity.
The emphasis on GitHub Copilot SDK and the Maia 200 chip reveals Microsoft’s dual strategy: building AI tools that developers actually use while developing proprietary hardware to control costs and performance. As AI coding assistants become standard developer tools, Microsoft is positioning itself to capture value across the entire stack—from chips to applications. This vertical integration approach could reshape how enterprise AI infrastructure is built and monetized in the coming years.
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