• by Laurie Sullivan  @lauriesullivan, July 31, 2024

Microsoft reported Q4 2024 earnings Tuesday, showing search and advertising revenue rose 19% and signaling work the company has done to integrate generative AI (GAI) into its ad platform.

Revenue overall rose 15% to $64.7 billion for the quarter, compared with the year ago. Operating income rose 15% to $27.9 billion. Net income rose 10% to $22.0 billion. Intelligent Cloud services revenue rose 19% to $28.5 billion. Gains from this part of Microsoft’s business now make up nearly 45% of all revenue.

Cloud revenue remains strong, but consumer devices continue to fall. Xbox hardware revenue, and Surface revenue have declined for seven consecutive quarters in a row.

“It has been an eventful quarter for Microsoft. The company started selling new Surface PCs that feature on-device GAI capabilities, made possible in part by its partnership with Qualcomm,” said Gadjo Sevilla, Emarketer senior analyst. “Intel and AMD are expected to release their own Copilot+ PCs in the coming months, potentially driving PC upgrade cycles this year, especially in business and enterprise where secure AI is in demand.”

Microsoft’s capital expenditures for the quarter reached $19 billion, nearly 80% more than in the year-ago quarter. Amy Hood, Microsoft chief financial officer said nearly all was cloud and AI-related spending. She also said those investments would pay off during the second half of the year when Azure growth should accelerate.

Florence-2, which offers next generation computer vision, is one of those technologies that Microsoft developers have been working on, but it's difficult to determine if it led to the increase in spend. 

Trip Chowdhry, managing director of equity research at Global Equities Research, sees a natural evolution for the technology to fit into advertising, specifically for creating ad copy. The technology can identify objects in a photograph, and translate what it sees into words.

More companies worldwide are experimenting with GAI. Microsoft Advertising and IAB Europe in April released a research study on GAI in digital advertising. The survey received 146 responses across IAB Europe’s network of members.

The findings show strong adoption with 91% of respondents already using or experimenting with GAI. Some 41% of respondents said they have a specific budget assigned to experiments with and using Gen AI, while half are fostering AI talent within the team. Nearly one-third said their company has dedicated days and time for team members to learn about AI.