In his annual letter to Microsoft staff, investors and customers, Satya Nadella predictably zeroes in on AI. Both in quarterly as well as decades-long paradigms, the company’s CEO positions Microsoft as the one-stop shop for AI-enabled work. How realistic is that prospect?
Microsoft possesses a virtually unique characteristic in how it is both IT establishment as well as challenger. 365, Windows, Office, these domains have retained their market grip; Azure, on the other hand, continues to strengthen its no. 2 public cloud status globally. Nadella notes how Microsoft’s cloud division has exceeded 75 billion dollars in revenue for the first time, boosted by a relentless 34 percent year over year.
AI do-it-alls
The main theme in the letter, notably betrayed by Nadella’s title “Thinking in decades, executing in quarters”, is an appreciation of technological paradigm shifts requiring both quick thinking and strategic views. However, far more important is Microsoft’s bold claim underpinning both timescales. Namely: it, according to itself, is in pole position for executing on AI.
Never mind the fact Microsoft’s dedicated AI team headed by Mustafa Suleyman has only existed for a year. Never mind that rival Google holds more AI cards with its models and dedicated AI chips. Instead, Nadella lists his company’s diverse cloud infrastructure, hardware and platform offerings to show Microsoft’s multifaceted bet on AI.
Specifically, Microsoft looks to put AI in the hands of as many workers as possible. The key goal is to make AI adoption pervasive and applicable everywhere. This may seem obvious, but it isn’t. Every IT vendor is seeking to cast its AI offering as core to its specific solution, oftentimes emphasizing the need for domain-specific knowledge. Examples range from Salesforce (with its CEO Marc Benioff heavily criticizing Copilot, labelling it the ‘new Clippy’) to KnowBe4 and JetBrains. All of them can be considered rivals to Microsoft in one way or another. Moreover, the models underpinning each solution may very well be the exact same ones, such as GPT-5 or Claude.
It very much is an open question whether or not the generalized AI inside Microsoft’s portfolio is the way forward, or if there’s a significant opening for specialized solutions. Apart from the cop-out that, yes, both philosophies can be successful independently, there will be a bias inside organizations towards one or the other. We’ve heard plenty of convincing arguments and seen evidence for domain-specific AI being more potent and reliable than generalized copilots; it’s up to Microsoft to prove that the opposite can be true as well. Nadella appears focused on doing so.
Other future prospects
In other areas, Microsoft continues to improve. Having shown itself lacking on the security front with two vast state-sponsored compromises of its IT infrastructure, the company launched its Secure Future Initiative back in late 2023.
Echoing Bill Gates’ early 2000s “Trustworthy Computing” efforts, Nadella says he has dedicated the equivalent of 34,000 full-time engineers to “our highest-priority security work”. Priorities range from identity protection to network and system security, threat detection and response, to, critically, security-by-design. Losing sight of the latter is what got Microsoft on the wrong side of history in the first place, foregoing critical security checks in favour of launching products sooner. This should by now have changed.
Financial performance masks deeper challenges
Switching gears to the short term, Microsoft’s fiscal year delivered impressive numbers. Revenue grew 15 percent to $281.7 billion, while operating income increased 17 percent to $128.5 billion. As mentioned, Azure revenue continues to rise.
Yet Nadella frames these results within a broader context: the AI platform shift. “More than any transformation before it, this generation of AI is radically changing every layer of the tech stack, and we are changing with it,” he wrote in his letter published October 21.
The challenge Microsoft faces is delivering current platforms at scale while building the next generation. Few companies have managed this balance successfully. Nadella’s mantra of “think in decades but execute in quarters” acknowledges this difficulty.
AI infrastructure expansion continues
Microsoft now operates more than 400 datacenters across 70 regions. The company added over two gigawatts of new capacity this year alone. Every Azure region is now AI-first and supports liquid cooling.
The recently announced Fairwater datacenter in Wisconsin, U.S., will deliver 10x the performance of today’s fastest supercomputer. Microsoft also made progress in quantum computing, announcing Majorana-1, the first quantum chip with a topological core.
Azure AI Foundry provides access to more than 11,000 models from partners including OpenAI, Cohere, DeepSeek, Meta, Mistral and xAI. Already, 80 percent of Fortune 500 companies use Foundry for AI workloads.
Copilot reaches 100 million users
Additionally, Microsoft’s Copilot family surpassed 100 million monthly active users across commercial and consumer segments. GitHub Copilot now has more than 20 million users. The platform has evolved into a peer programmer capable of executing tasks asynchronously.
A major update to Microsoft 365 Copilot brought together chat, search, create, notebooks and role-specific agents. Agent Mode allows users to start with a prompt and work iteratively with Copilot as it orchestrates multistep tasks.
Copilot Studio grew to more than 230,000 organizations using it to extend Microsoft 365 Copilot or build their own agents with no-code/low-code tools.
Long-term vision meets quarterly pressure
Fifteen years ago, Microsoft set out on its cloud initiative. With that in mind, Nadella asked employees what they’re working on today that they’ll look back on in 15 years and say “we got it right.”
Responses ranged from cybersecurity improvements to making medical knowledge ambient in clinical workflows. “These responses and so many others reflected a deep sense of purpose and belief in what’s possible,” Nadella wrote.
The letter emphasizes Microsoft’s dual mandate: maintaining current operations while building future platforms. This balance requires what Nadella calls “the humility and curiosity required to continuously improve.” More than that, the company’s vast customer base will need convincing that Microsoft’s generalized form of AI adoption is actually the best way forward. We’re not so sure just yet.
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