Microsoft Cloud Revenues Break the $40 Billion Mark for the First Time

On Wednesday, January 29, 2025, Microsoft released their FY25 Q2 earnings and discussed the results at an analyst meeting afterward (transcript available here). Given Microsoft’s recent focus on anything branded as Copilot, a lot of attention was paid to what’s happening around artificial intelligence, but the headline number released was the $40.9 billion revenue for the Microsoft Cloud (an annual run rate of $163.6 billion).

The Microsoft Cloud is an amorphous grouping of products that includes Microsoft 365, Azure, Dynamics 365, and LinkedIn. The growth in cloud revenues has been strong and steady

The free edition of GitHub Copilot in Visual Studio Code notched up over a million signups in the first week post-launch. As I’ve noted here, GitHub Copilot is a great help to any developer, including those working with PowerShell for Microsoft 365.

Progress with Microsoft 365 Copilot

Satya Nadella said that customers who bought Copilot (for Microsoft 365) had expanded the number of seats by ten times over the last 18 months. That sounds impressive, but we don’t know the real numbers and when you start from a low base any increase seems large. Nadella also said that the number of people who use Copilot (for Microsoft 365) daily more than doubled over the last quarter with “usage intensity” increasing 60%. Usage intensity is Microsoft’s way of measuring how often people use Copilot for Microsoft 365 and what they do.

According to the documentation the statistic is based on “the average number of Copilot actions taken per user per month.” Microsoft 365 message notification MC986522 (23 January 2025, reports the addition of usage intensity and retention metrics in the Microsoft Copilot dashboard to allow customers to see how active their users are. It’s also possible to use the Graph Copilot usage API to analyze Copilot interactions and decide if people are active enough to keep their expensive licenses.

Copilot agents also received attention, with the claim being advanced that Copilot Studio makes it “as simple to build an agent as it is to create an Excel spreadsheet.” This is an aspiration rather than reality because creating a Copilot agent today (Figure 1) requires substantially more effort and expertise than firing up Excel to calculate some numbers.

CFO Amy Hood noted that the annual run rate for AI surpassed $13 billion and is above Microsoft’s expectations. The gap between the capital spending of circa $20 billion/quarter for the last several quarters and current revenues is one that Microsoft wants to close, and that’s why customers see so much stress being placed on Copilot.

No Detail about Microsoft 365 Seats

Microsoft failed to update the user numbers for Office 365, Microsoft 365, or Teams. The only clue was the statement that Microsoft 365 commercial seats grew by 7% year-over-year with revenue growth of 15% in constant currency. The growth was attributed to people switching to Microsoft 365 licenses and Copilot, but no details were given. A year ago, Microsoft said that the number of paid Office 365 seats was over 400 million. Applying a growth rate of 7% puts that number at around 428 million, which is as close as we can guess.

I couldn’t find a single mention of Teams in the analyst meeting transcript, so the official number for Teams users remains at 320 million as stated in October 2023. If Teams maintained the same ratio of seats to Office 365, it would be at around 350 million, bit Microsoft is staying silent on the topic for some reason. It’s interesting that the poster child of Microsoft investment briefings from a couple of short years ago has been left in the dust by the gallop toward AI.

Tactics to Generate Microsoft Cloud Revenues Won’t Change

I don’t expect much to change for Q3 (the current quarter). Microsoft will continue to be ultra-focused on driving Copilot revenue. Along will selling Microsoft 365 Copilot licenses, they’ll continue trying to convince customers to upgrade to higher base products, like Microsoft 365 E5. Given an apparent slowdown in new user acquisition, it’s the only way to keep the Microsoft 365 portion of the Microsoft Cloud revenues to grow.

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