Microsoft has restructured how it reports financial results across its business units. In a strategic move aimed at offering greater transparency to investors, the restructuring focuses particularly on clarifying the impact of its investments in artificial intelligence (AI). This change forms part of Redmond’s ongoing efforts to highlight the value of its AI-related businesses, particularly in response to increased investor scrutiny.
Microsoft’s restructuring involves the reallocation of revenue from search and news advertising under its Azure cloud-computing division, aligning these services more closely with the company’s AI strategy. Additionally, revenue generated from Nuance, Microsoft’s AI-driven speech technology service, will now be reported under its productivity business, which includes popular software such as Word and PowerPoint.
This reorganisation has also prompted Microsoft to restate revenue growth for these divisions for the previous fiscal year and adjust its forecasts for the upcoming quarter. The company now projects its intelligent cloud revenue for Q1 FY25 to be between $23.8bn and $24.1bn, a revision from its earlier estimate of $28.6bn to $28.9bn.
Microsoft leaning into market demand for AI scrutiny
This shift comes at a crucial time for Microsoft, as the company and other tech giants face increasing demands from investors to demonstrate how their substantial investments in AI are translating into financial returns. Despite slower growth reported in its cloud business in July 2024, Microsoft remains optimistic, anticipating an acceleration in the second half of the fiscal year.
The restructured reporting is expected to provide a clearer picture of how AI investments are impacting Microsoft’s bottom line, offering investors more precise insights into the company’s financial health and strategic direction as it continues to expand its AI capabilities.
In late July, Microsoft reported its Q4 FY24 results, revealing a net income of $22.03bn, a year-on-year increase of 10%. The company’s total revenue for Q4 FY24 was $64.72bn, reflecting a 15.2% increase, including $36.8bn in revenue generated by Microsoft Cloud, up 21% year-on-year.
Earlier this month, Microsoft announced the general availability of Face Check with Microsoft Entra Verified ID, a new security feature designed to enhance identity verification through facial recognition technology. Initially introduced in preview mode in February 2024, this tool is now available as a standalone product and as part of the Microsoft Entra Suite.
Redmond continues to pour money into AI
Over the past 12 to 24 months, Microsoft has significantly increased its investments in AI, marking a pivotal period in its strategy to integrate AI across its product offerings and services.
One of the most notable initiatives is the formation of Microsoft Research AI, which brought together over 5,000 computer scientists and engineers to accelerate the company’s AI efforts. This group, led by computer vision expert Harry Shum, focuses on advancing AI technologies across various platforms, including agents, apps, services, and infrastructure.
Microsoft’s investment strategy also includes substantial financial commitments to AI-related infrastructure, such as its data centres. The company’s capital expenditure on generative AI in these facilities is projected to increase significantly, from $16bn in fiscal 2024 to an estimated $23bn by fiscal 2027.
Additionally, Microsoft has been proactive in addressing the ethical challenges associated with AI, including advocating for regulations on the use of facial recognition technology. This aligns with CEO Satya Nadella’s vision of “democratising access to intelligence” to address some of the world’s most pressing challenges.
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