Microsoft

[Adam Kay]

All things MSFT related

[Adam Kay]

Msft has been in the news lately-this time in the field of Quantum computing. Is it a threat to Nvidia? In short, no.
Quantum computers are not designed to perform memory intensive operations like AI and they require extreme conditions such as operating in a near absolute zero environment in a vacuum, making them impractical for most business cases.

Quantum computers are very good at solving complex scientific problems by simulating interactions from almost infinity large permutations.

Nvidia is a leader in providing researchers(msft/Goog) with the software and hardware to make progress in quantum computers possible (DGX Quantum(servers), CUDA-Q(a quantum dev platform) and cuQuantum SDK(libraries and dev tools).
Jensen Huang recently stated 'practical uses for quantum computers are between 10 and 30 years away'.

Microsoft has just announced a major breakthrough in quantum computing with its new Majorana 1 chip. This chip is built using a special type of particle called Majorana fermions, which are unique because they act as their own antimatter counterparts. The idea is that this will make quantum computers more stable and less prone to errors, something that’s been a huge challenge so far.
The big deal? Microsoft believes this chip could scale up to a million qubits—the building blocks of quantum computers—which would be a massive leap forward. Currently, most quantum computers only work with a few hundred qubits at best.
This news has shaken up the tech industry, with investors reacting quickly to the potential of this technology.

Microsoft’s CEO, Satya Nadella, has said this technology could help revolutionise industries like cybersecurity, drug discovery, and climate science by solving problems that traditional computers can’t handle. However, while the Majorana 1 chip is a major step forward, it will still take more research and development before quantum computing becomes widely usable.

[Adam Kay]

Transcript from an interview with Bill Gates, Steve Ballmer and Satya Nadella to celebrate 50 years of MSFT(Friday April 4)

Nadella: What we are really supplying is intelligence. It started in 1975 with Bill and software was the thing. And today nobody is going to get up and say, hey, we need less of it. I need more of it and I need it daily. One thing is certain, the world needs more compute in the future. We will adjust to the geopolitical shifts and see how that shakes out.(Nadella). Bill Gates- I’d like to say that the biggest trend in the world today, way beyond any political shifts is the arrival of AI. We just turned 50 as a company but the next decade will probably be the most profound. Asked about potential over supply of AI compute, Nadella: Do we have to be matched up to it, perfect matching of demand and supply every second? No. So is this something we are absolutely committed to to building our data centres across 60 regions? We are absolutely going to do this. Sure there are always adjustments.

Steve Ballmer: There is a bright future in intelligence and the biggest mistake we could make is to slow investment due to a short term hiccup. Bill Gates: you will always go through periods of having a bit too much supply but over the next 10 years you will probably find we are always going to be in a shortage vs demand so what is key is having a large capital budget to maintain the investment build out.

Nadella: Heres the interesting thing. We have found the thing (AI) I am not looking for any other things. Intelligence will power everything . I am building our infrastructure to support the need in the future. The need from a robotics company, an autonomous driving company, a medical research and drug company.

[Adam Kay]

Microsoft GAAP EPS of $3.46 beats by $0.24, revenue of $70.06B beats by $1.62B

A Big beat. Details tomorrow

[Adam Kay]

Management Perspective
Chief Executive Satya Nadella celebrated a record-breaking quarter, with Microsoft Cloud revenue surpassing $42 billion, reflecting a 22% rise in constant currency. He underscored robust demand for AI and cloud solutions, noting that clients such as Coca-Cola and ServiceNow are expanding their Azure usage. Adoption of PostgreSQL among Fortune 500 firms has also surged. Nadella highlighted advancements in AI, with Microsoft Fabric now boasting over 21,000 paying customers and GitHub Copilot reaching more than 15 million users. He also pointed to significant growth in AI-enhanced productivity tools like Microsoft 365 Copilot, which tripled its customer base year-on-year.

Finance Director Amy Hood reported Q3 revenue of $70.1 billion, up 13%, with earnings per share at $3.46, an 18% increase. She highlighted strong growth in commercial bookings, up 18%, driven by Azure commitments and long-term client contracts.

Outlook
Microsoft anticipates Q4 revenue for the Productivity and Business Processes segment to range between $32.05 billion and $32.35 billion, equating to 11%–12% growth in constant currency. M365 Commercial Cloud revenue is expected to grow by approximately 14% in constant currency. Intelligent Cloud revenue is projected to be between $28.75 billion and $29.05 billion, with Azure revenue growth forecast at 34%–35% in constant currency. More Personal Computing revenue guidance is set between $12.35 billion and $12.85 billion, with Windows OEM revenue expected to decline in the low to mid-single digits.

Financial Performance
Microsoft Cloud revenue reached $42.4 billion, up 20% in constant currency. The gross margin percentage for Microsoft Cloud was 69%, slightly lower due to the expansion of AI infrastructure. The Productivity and Business Processes segment generated $29.9 billion in revenue, fuelled by growth in Microsoft 365 and LinkedIn, with Dynamics 365 revenue rising 16% in constant currency. Intelligent Cloud revenue totalled $26.8 billion, with Azure and other cloud services growing 33% in constant currency, including notable contributions from AI services. More Personal Computing revenue was $13.4 billion, with Search and news advertising revenue (excluding traffic acquisition costs) increasing 21% in constant currency.

Q&A Session
Keith Weiss, Morgan Stanley: Enquired about the AI-driven data centre strategy. Nadella explained that build and leasing adjustments are being made to align with workload growth, emphasising supply chain optimisation. Hood added that power constraints are region-specific, with continued infrastructure investment.
Brent Thill, Jefferies: Asked about growing demand for cloud migrations. Nadella noted consistent progress in migrations, data expansion, and cloud-native workloads as key drivers.
Karl Keirstead, UBS: Questioned Azure AI’s 16-point contribution to revenue growth. Hood clarified that non-AI services exceeded expectations, while AI services benefited from earlier-than-anticipated supply availability.

Sentiment Analysis
Analysts conveyed positive sentiment, particularly regarding AI-driven Azure growth and commercial cloud momentum. Their tone was curious yet optimistic, focusing on growth sustainability. Management maintained a confident and upbeat outlook, with Nadella emphasising AI and cloud opportunities and Hood highlighting operational efficiencies and strategic foresight.

Quarter-on-Quarter Comparison
Microsoft Cloud revenue rose from $40.9 billion in Q2 to $42.4 billion in Q3, driven by strong AI and cloud demand. Productivity and Business Processes revenue increased from $29.4 billion to $29.9 billion, supported by greater adoption of M365 and Dynamics 365. Q3 showed stronger-than-expected AI adoption, with notable growth in Copilot seat expansions and usage intensity. Management’s tone remained optimistic, with increased focus on AI’s role in future growth compared to the prior quarter.

Risks and Concerns
Management acknowledged potential AI capacity limitations beyond June 2025, with Nadella stressing the need to balance long-term infrastructure investments with demand-driven expansion. Power and data centre space constraints were noted, with ongoing investments to address these challenges. More DC needed! Here the risk is not getting enough due to infrastructure

Final Takeaway
Microsoft’s Q3 2025 performance demonstrated strong revenue growth across its cloud and AI segments, underpinned by widespread adoption of AI-driven tools and enterprise solutions. The company forecasts continued momentum into Q4, with a focus on expanding AI capabilities and resolving capacity constraints to meet soaring demand.

[Adam Kay]