Microsoft's AI Division Annualized Revenue Exceeds $37 Billion, Growth Rate Reaches 123%

en.Wedoany.com Reported - Microsoft (MSFT) Artificial Intelligence division has surpassed $37 billion in annualized revenue, with a growth rate of 123%. This business holds a significant share within Microsoft Cloud, which has exceeded $54 billion in quarterly revenue. The Intelligent Cloud segment, which includes these AI services, saw revenue grow by 30%, reaching $34.7 billion in the quarter.

Revenue has grown at a compound annual growth rate of 15.2%, rising from $318.3 billion to $486.5 billion over three years. This growth rate is lower than the 17.9% growth over the last twelve months (LTM), and the current acceleration is unlikely to persist for the full three years. The profit margin has slightly declined from 39.3% to 38.3%, while earnings have increased from $125.2 billion to approximately $186.1 billion, a gain of 49%. The model assumes a constant price-to-earnings (P/E) multiple of 21.9x, with the stock price approaching $547.83 and market capitalization rising from $2.7 trillion to $4.1 trillion, approximately 49% higher than the current stock price.

The next wave of growth may come from a shift in the business model, as management explains that the per-user billing model will transition to a dual billing model based on both users and usage. The number of new Microsoft 365 Copilot (Microsoft 365 Copilot) seats has increased by 250% year-over-year. The main concern lies in the scale of investment required to support growth, with management expecting approximately $190 billion in capital expenditures for the 2026 calendar year. This spending pace has made investors uneasy about the timing of returns. Revenue needs to maintain a compound annual growth rate close to 15.2%, without requiring significant changes in the price-to-earnings (P/E) multiple. Profit margins are expected to be at or near three-year peaks, and a return to long-term averages would make calculations more difficult. The shift to usage-based pricing provides a clear revenue catalyst, but the planned $190 billion in capital investment also introduces significant short-term risks.