Microsoft Corp at UBS Global Technology and AI Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Judson, maybe, just given your role as the Chief Commercial Officer of Microsoft and running an enormous sales organization and being obviously in your role, extraordinarily client facing, maybe I'll just start with a couple of questions on sort of the pulse of those conversations these days. So I think we're all acutely aware that we went through a COVID boom and then we went through a post-COVID lull. When you're talking to customers Judson, are you starting to sense that that sort of focus on cost cutting? Are we through that now? And now, the animal spirits are unleashed, how does it feel to you?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Got it. And maybe just because you did mention the election -- I know it's probably too soon for you to comment. But any change maybe in the demand environment since? Or maybe the way to approach this question is given that Microsoft does have a fairly significant government exposure, would you anticipate any changes in federal government demand as a result of this new administration?

Question: Karl Keirstead - UBS Securities LLC - Analyst : All right. We'll ask you in 6 or 12 months.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Another venue that you had to interface with your largest clients was the big Ignite conference that was in Chicago. So I was there. Our team was there. I'd love to get your perspective, when you were interfacing with clients at Ignite, what did you take away from that event in terms of hot topics? I think, we know at least one of them. But how would you characterize the mood from Ignite?

Question: Karl Keirstead - UBS Securities LLC - Analyst : So let's hit on a bunch of those. Because you touched on several topics, I'd just go one layer deeper. So earlier, you mentioned enterprises searching for the scenarios that might have high ROI. Are you sensing a pattern in the types of use cases that enterprises are pointing AI at? I don't know how you would want to describe it, but are they more internal workflow automation? Are they customer facing? Are there any common threads?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Maybe the one that struck me when I was at Ignite was the focus on agents and how Copilot is becoming a connected to the agents you're deploying to automate certain functions. But everybody in this room is also listening to others, throw their hat in the ring. So the most prominent is probably Salesforce banging the drums on their Agentforce platform. But Google's in there. Even OpenAI is talking about launching agents. So what is Microsoft's pitch to enterprises? What's unique about your story to differentiate from these others that are looking to capitalize on what seems like an amazing opportunity?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Let's ask you a few more AI questions because it's a rich subject. So I'd like to ask you a couple of the infrastructure layer and then the model layer. So at the infrastructure layer, Judson, Microsoft's been very clear -- Amy has on the call -- that you've got enormous demand that you can see in your cloud backlog. But your ability to service that demand is somewhat constrained by the fact that even Microsoft, at your scale, can't build enough data centers and lease enough capacity to service that demand. So can you get the group comfortable with your visibility into that capacity coming online and your best guess as to when the supply-demand imbalance evens out?

Question: Karl Keirstead - UBS Securities LLC - Analyst : And at the model layer, Judson, obviously, Microsoft has made an extraordinarily successful bet on OpenAI. So congratulations on their success because it reflects well on you guys too.

Question: Karl Keirstead - UBS Securities LLC - Analyst : But we have been listening to Satya and Jared and Mustafa use this term that LLMs are commoditizing. And what does that mean to Microsoft? Does that just mean that the feature gaps between the different models are beginning to narrow? And if that's true, how does that trickle down into Microsoft's future? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 7:55PM, MSFT.OQ - Microsoft Corp at UBS Global Technology and AI Conference

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Well, as you all know, we're excited to have Sarah Friar, the CFO of OpenAI in this chair tomorrow morning. So we're going to ask her as well about the Microsoft relationship, and I'm sure she'll be singing your praises. But let's talk a little bit about that because that's actually jumps in another important topic for investors. How that relationship is likely to evolve? So Microsoft has sort of helped to nurture OpenAI by being its exclusive compute infrastructure provider. But as OpenAI scales and needs ever-more compute, could a moment come when maybe OpenAI could look elsewhere for compute or how are you thinking about the durability of that exclusivity, if I can put it that way?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Obviously, Azure AI services are not the only component of the $10 billion run rate AI revenues that Satya called out on the last call. M365 Copilot, GitHub Copilot are critical. So let's talk about that second piece on Copilot. Can you give us an update, Judson, on how you're feeling about adoption? And I think what people would love to hear is, is there a catalyst that might serve to trigger ever-faster adoption with enterprises? For instance, is there a potential model upgrade that might make Copilot a little bit smarter and the value prop improve? Are there integration points that would help organizations that are currently undecided get over the hump? What are those catalysts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 7:55PM, MSFT.OQ - Microsoft Corp at UBS Global Technology and AI Conference And by the way, I should say at the onset, many of you know that UBS signed a 50,000 seat Copilot deal. So apparently, we got over the hump.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Okay. Judson, in our last few minutes, let's talk about some other areas that might not be so directly AI focused but are big parts of the Microsoft suite that it'd be nice to hear your views on. So in the core Office 365 or M365 seat growth, I think in this last quarter, we saw some slowdown in seats. I'm assuming that that's just scale of the business maturity, maybe a little bit of macro. But then the offset to that, that enabled Microsoft to still put up terrific growth in that area. Was that REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 7:55PM, MSFT.OQ - Microsoft Corp at UBS Global Technology and AI Conference you're still executing really well on the M365 bundles, the SKU shifts up to E5? So can you offer your thoughts a little bit on the seat trends? But then, how much room is left on the bundling and the SKU shift? Yeah.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Got it. Judson, I want to finish by letting you talk a little bit about what you described as your 65,000 individual sales teams and maybe offer some insights into any changes of how are you restructuring little, tweaks at this point, I'm sure? Anything interesting to call out that might be indicative of changes in the market that you're appropriately reacting to.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Yeah, you gave some amazing success milestones.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Yes. What are they?

Question: Karl Keirstead - UBS Securities LLC - Analyst : Any early signs of that picking up a little bit, Judson?

Question: Karl Keirstead - UBS Securities LLC - Analyst : And also, the Oracle on Azure. A lot of SAP customers moving over.

Question: Karl Keirstead - UBS Securities LLC - Analyst : Well, Judson, that's it, the time we have. Congrats on an amazing last year for Microsoft. Thanks for being such a great tech partner for UBS.