Satya Nadella insists that people are using Microsoft’s Copilot AI software a lot

Microsoft delivered a strong earnings report on Wednesday with revenue for the quarter of $81.3 billion (up 17%), a net income gain of $38.3 billion (up 21%), and record Microsoft cloud revenue of more than $50 billion.

But the stock took a beating on Thursday as investors worried about how much the tech giant had spent building its cloud and questioned whether that investment would pay off. Microsoft CEO Satya Nadella says yes, and he spent a lot of time on the earnings call trying to make that point.

Microsoft spent as much on capital expenditures in the first half of its current fiscal year as it did in the entire previous year. The numbers are truly enormous: Microsoft spent $88.2 billion on capital expenditures last year, and has spent $72.4 billion so far this year.

Much of this spending is for enterprise AI service and major AI labs, especially OpenAI as well as Anthropy. The big question on investors’ minds is: Will spending translate into greater use and, ultimately, profits?

Investors fear that Microsoft’s main enterprise cloud products, Azure, and its Microsoft 365 applications, have not grown as quickly as they would like.

“The fact that both the Azure and M365 sectors are down a bit is the main negative we’re hearing,” Carl Keirstead, a Wall Street analyst at UBS, wrote in his research note Thursday. (But Keirstead isn’t worried about that, and recommends buying the stock.)

However, a few months ago, news reports that people don’t really want to use Microsoft’s AI, despite Copilot being integrated into all kinds of Microsoft products, spread everywhere.

Nadella spent much of his time during the earnings call engaged in what can best be described as the use of artificial intelligence in public relations. Despite his idea, some of the numbers he presented were too squishy.

For example, daily users of Copilot AI consumer products have increased “nearly 3x year over year,” Nadella said. This refers to AI conversations, news feeds, search, browsing, shopping, and “integration into the operating system.”

As for the number of actual users it represents, it was not mentioned. (We’ve reached out to Microsoft and asked for this.)

Last year, the company said in its annual report that it had surpassed 100 million monthly active users of Copilot, but this includes business and consumer users.

He was more candid about Microsoft’s programming AI platform, GitHub Copilot, saying it now has 4.7 million paid subscribers, up 75% year-over-year. This seems to be a healthy business. Last year, Microsoft said in its annual report that GitHub Copilot had 20 million users, a number that includes those who choose the free tier.

He also said that Microsoft 365 Copilot now has 15 million paid seats from companies purchasing it for their employees. This is out of 450 million paid seats, the company said.

Nadella pointed to the growth of Dragon Copilot, Microsoft’s healthcare AI agent for medical professionals (a competitor to the hot startup Harvey). The product is available to 100,000 medical providers and was used to document 21 million patients during the quarter, a three-fold increase year over year, he said.

Are the billions in data center spending worth it? Nadella clearly thinks so. Demand for AI services across products far outstrips supply from data centers, so all new equipment is essentially booked to capacity over its lifetime, he and CFO Amy Hood said on the earnings call.