LB Select
2023.04.26 04:31
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Microsoft earnings call: AI! AI! Still AI!

"The AI boom is creating new opportunities," and Microsoft is also committed to leading this round of AI wave! With a large investment, how do we view the gross profit margin? And how should we view the cooperation with OpenAI? Should we be concerned about regulatory concerns such as data privacy?

AI (Artificial Intelligence) is not yet mature, but Microsoft still hasn't disappointed the market!

Overnight, Microsoft announced its third-quarter results for the 2023 fiscal year, showing single-digit revenue growth for the second consecutive quarter, but still higher than market expectations; earnings per share increased by 10% year-on-year to $2.45, also higher than analyst expectations.

After the financial report, Microsoft's stock price rose by as much as 5% in after-hours trading, and during the executive's conference call to interpret the financial report, the increase once exceeded 9%!

What did the analyst conference call say that could excite the market so much?

It still has to be the focus that ordinary retail investors to Wall Street banks are all concerned about-AI!

In the financial report statement, Microsoft CEO Nadella wrote prominently below the financial indicators:

"The world's most advanced artificial intelligence model is combining with the world's most universal user interface-natural language, to create a new era of computing.

Microsoft Cloud is the preferred platform to help customers get the most value from digital spending and innovate for the next generation of AI."

He further stated during the conference call: "This AI boom is creating new opportunities!"

It is worth noting that not only Microsoft itself has mentioned AI many times, but analysts' questions are also mostly focused on AI. Although Microsoft has not been able to disclose the profit direction of products related to AI, Wall Street is still enthusiastic about it.

Microsoft Executive Interpretation

At the beginning of the conference call, Microsoft first confidently stated: The company will lead the current wave of AI platforms (development), but it is also expected that capital expenditures in the fourth quarter will increase significantly due to AI expenditures, and AI capital expenditures in the 2024 fiscal year will further expand.

Microsoft also stated that the current demand for AI products is good, Azure OpenAI has 2,500 customers, a ten-fold increase month-on-month; Github's enterprise-oriented AI Copilot has obtained 10,000 customers; and more than 36,000 institutions have used AI functions on the Power Platform.

Regarding the gross profit margin during the period of investing in AI, Microsoft also gave its own answer:

"As we have said before, we hope to focus on investing in AI. Although it will increase sales cost growth, we are committed to ensuring that the company has a healthy profit-making ability by maintaining lower operating costs.

Our view of long-term success is to occupy a favorable position in the large market, occupy market share, and ensure that we will lead this wave as much as possible, and focus on improving gross profit margin." **

Some of our businesses will enter the AI era over time, and then we will also charge for AI features, ultimately achieving operational profits."

Q&A Session

  • OpenAI Partnership

When it comes to AI, it is natural to mention OpenAI, which has made Microsoft famous in this wave of technology. How should we understand the cooperation between the company that has received billions of dollars in investment from Microsoft and used ChatGPT to return the favor?

Microsoft CFO Amy Hood said: "Microsoft's cooperation with OpenAI is mutually beneficial, and Microsoft's growth will benefit OpenAI, and vice versa." From a financial performance perspective, all commercial cooperation customers using Microsoft's Azure cloud and related AI services will be included in the company's revenue, and OpenAI is no exception.

  • Copilot Pricing

After ChatGPT, Microsoft's Microsoft 365 Copilot also stunned the audience. Analysts are curious about how it will be monetized in the future. Will the pricing be 10%-30% higher than regular packages?

Microsoft said, "Perhaps we can look at the pricing of Github Copilot" (personal users pay $10 per month/$100 per year, and enterprise users pay $19 per person per month), "and then price it based on the value and productivity improvement brought by Copilot."

  • Regulatory Concerns

How does Microsoft view regulatory concerns about AI in data, customer privacy, and management?

Satya Nadella firmly stated: Microsoft's approach is not to wait for regulation, but to prioritize the unintended consequences of new technologies from day one and strive to establish all safeguards in the development process.

However, Microsoft will still accept regulation; when Microsoft has more trust in AI, it can naturally benefit from it.