Microsoft Azure’s biggest quarterly jump

Azure reached $33.2B in quarterly revenue.

Its growth went 39% → 40% → 42% → 48% over four quarters (on the restated basis).

• $3.75B added since June is the largest sequential increase in that series

• Annual run rate: ~$133B

• Commercial backlog held flat at $677B, still up 73% YoY.

It covers all commercial business, not just Azure. Our modeled Azure commits were ~$468B last quarter, including OpenAI ~$281B.

Foundry is a key Azure growth driver

Foundry is rapidly growing Azure’s platform for building AI apps and agents on models across many providers:

• 120,000+ customers, revenue up more than 3x YoY

• Customers building multi-model agentic solutions: up 5x YoY

• Revenue from open-source models on Foundry: up 10x YoY

On frontier labs versus Microsoft’s own models, Nadella said:

“If you’re a coding agent user, you want, in fact, Anthropic and OpenAI, by the way, to compete for your workload, not once a quarter, but for every task.”

Microsoft wants Azure to be where models compete task by task, rather than a cloud tied to one lab. Its own MAI models aim to match leading models within three to six months of release “at a fraction of the training cost.” Whichever model wins, the workload stays on Azure.

From a few big AI buyers to enterprise breadth

OpenAI commercial arrangements generated $10B, or ~11% of Microsoft’s total quarterly revenue, including revenue-sharing payments.

Asked whether Azure’s AI growth comes from enterprises or AI natives, Nadella cited Unilever, Rolls-Royce and Austrian bank RBI, then said:

“…the enterprise breadth motion is starting. But like everything else, the enterprise stuff is not like a quarter over quarter. It’s a decade long thing. And that’s what I’ve been waiting for as opposed to four customers who buy a lot of capacity from you and you can show a few quarters of growth. And that’s not a business as far as I’m concerned.”

Consumption pricing model is spreading through the enterprise

Nadella:

“And as agents take on higher value work, consumption opens up business funded demand with spending tied directly to the value these agents deliver.”

Copilot customers on usage-based billing grew 75%+ in one quarter. GitHub’s agent credit consumption more than doubled after usage-based billing began.

CFO Amy Hood expects “a slower move” outside of coding, and tied Microsoft’s forward-deployed engineers and new sales motions to closing that gap.

What it means for alliance leaders

• Target business budget, not only IT. Microsoft is pushing AI into business units, and partners that drive usage there help it spread

• Bring deployment capacity into co-sell. Outside coding, adoption is slow and hands-on, which is why Microsoft is funding forward-deployed engineers.

Are you co-selling with Microsoft?