Microsoft Corp at Wells Fargo TMT Summit Transcript

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

Question: Michael Turrin - Wells Fargo & Co - Analyst : Okay. I guess, I want to try to frame this in a few different ways. But just correct me if I don't have this right. Were you involved in the same role, the same type of group during the build out cycle? What's your level of experience or timeline with respect to Azure?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Yeah, totally.

Question: Michael Turrin - Wells Fargo & Co - Analyst : That makes sense.

Question: Michael Turrin - Wells Fargo & Co - Analyst : So what I'm curious about, and there are probably several different layers we can get into with this is, just comparing and contrasting the build cycle that Microsoft is undertaking currently towards AI. And we've seen the numbers versus what the Azure build out cycle was like. And if there are similar muscles that you're able to exercise that give you an advantage, one thing that seems like it's very different or somewhat different is Azure was following AWS to some degree, whereas, in AI you have a more pronounced lead in the market. But I'd love to just start with that train of thought and get your perspective on how you'd compare and contrast the two and then have some more specific questions to get into?

Question: Michael Turrin - Wells Fargo & Co - Analyst : When the Azure build cycle start, there's like a legend that there is actually a memos being passed around around the move to Internet services. I think there was a lot that went into that, Azure. How pronounced is the focus on Generative AI or AI in general within the company? Is it similar in terms of the underlying focus across the organization at this point?

Question: Michael Turrin - Wells Fargo & Co - Analyst : I think one thing that investors are continually trying to figure out is how to gauge the CapEx spend increase within Microsoft. I think management has been clear in giving us an AI contribution metric on Azure, communicating that this is demand driven. This isn't just building things for the sake of building. What's your perspective on us thinking about CapEx as sort of a leading indicator in terms of like we're thinking about the demand signals and your focus on building out in front of those?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Okay. And one of the things you touched on was -- one of the things I had jotted down to is Amy's characterization. Like, half of this is long-term, long lifetime investments, and half is more to service current demand. For you in the field implementing, how would you parse that? What's the additional context you would add, given you're deeper in the trenches in terms of where these investments are going?

Question: Michael Turrin - Wells Fargo & Co - Analyst : So the other thing Amy's been telling us about for the past couple of quarters is supply constraints. More in the context of the AI contribution metric. But we've been conditioned to believe that there's a supply constraint that's weighing on growth to some degree that is expected to eat some of the burden to ease in the second half of your fiscal year. Kind of a similar question. You're more in the weeds on where the supply constraints are and what's happening there. So what added perspective can you share on what's driving the kind of the expected change in the shape of AI contribution and Azure growth throughout the fiscal year?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Is there a way to think about how far you're planning for in the future when we're thinking about the longer standing? Yeah.

Question: Michael Turrin - Wells Fargo & Co - Analyst : I mean, one question you've probably gotten this morning that we also feel is just, it seems like there's variability in how this could play out, right? And so, but you're making kind of longstanding investments in some way. So what can you say in terms of what informs the confidence there, and how many different scenarios you're able to take into account?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Does having an Azure provide an advantage in terms of how you think about potential repurposing, if that were to be?

Question: Michael Turrin - Wells Fargo & Co - Analyst : How does the company think about -- how do you think about just the balance in investing in proprietary technology for these efforts versus leveraging third-party models, third-party tech and capabilities that are out there? There's a lot of reporting on Microsoft doing different things at any point in time. But how do you kind of assess and balance the trade-offs and advantages between the two?

Question: Michael Turrin - Wells Fargo & Co - Analyst : What you just described seems like it's been consistent since Satya. It's probably not this discreet, right? Like, we have this outside perception that like things naturally change when leaders change and I suspect it's more fluid than that. But he's certainly embraced openness, right, throughout the tenure either for things like (multiple speakers). Yeah, exactly.

Question: Michael Turrin - Wells Fargo & Co - Analyst : Does that map well to just the thoughts on AI strategy and leveraging different models? Because it feels like there's been a lot of focus on the OpenAI-Microsoft relationship, but if I think about Microsoft's customer centricity, there would be inherently a desire to preserve flexibility.

Question: Michael Turrin - Wells Fargo & Co - Analyst : Yes, yeah. I'm curious, you've hit on it a couple of times, just the rapid pace of what you're doing. Yeah. I've heard a similar anecdote. Yeah. This is a breeze for you right now, right? Sitting up here while your phone lights up. This is the most comfortable I've been in a long time. But I'm curious, given we have this perception to some degree that just the build cycle is the priority. And there are various signals that suggest that just finding capacity is at a premium. What are the metrics you're tracked on? Or what are the KPIs for your role? How do you balance? Obviously, you're not just going and scooping up capacity wherever you can find it, right? There's definitely some nuance. Microsoft always has a P&L-centric approach to how you're measured. So I'm curious, like for you and your role, how are you balancing the speed with nuance and finesse and the other things that are likely necessary?

Question: Michael Turrin - Wells Fargo & Co - Analyst : How has like throughput cost consideration evolved relative to what you would have expected thus far? Because it seems like every point in evolution there is this view, that cost curve is coming down and could come down at a more pronounced rate? But I'm curious, what you were expecting two years ago if you had expectations at that point in time versus what you've seen?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Here's something I'd be curious to get your thoughts on. So before this AI wave, there was a common conversation across investors on where we were in terms of the overall cloud migration journey. Azure's growth rates started to slow and other hyperscalers started to slow. And I started to get these questions and I suspect they did too around why didn't you tell me public cloud migration was in the seventh or eighth inning? Doesn't seem right, but, you know, the numbers were telling a different story at that point in time. If I asked you where you think, based on the evaluation that you're doing, just from a cloud perspective -- AI, I'm sure, is much earlier. What would you say in terms of the inning you think we're in the public cloud migration journey?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Well, let's keep it nine for now.

Question: Michael Turrin - Wells Fargo & Co - Analyst : Okay. The common question that we get that I'm sure they get as well is just around when more generative monetization could show up in the application layer of software. And I'm wondering if there are things that you see, from your perspective, that are inhibitors to that? Do you think that some of this is still just a function of need for capacity? Or is it just we're all too early because it's only been two years since ChatGPT really had its moment with us? It doesn't feel like two years from what I'm sitting. But does it feel like five or what?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Are there certain use cases or types of applications that you see are just the most intensive from a resource perspective? Like, when you're planning, what are kind of lower intensity uses versus higher intensity uses?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Are you how tied to headlines we see on things like nuclear capabilities potentially being on the roadmap for just enablement? Is that something that's within your purview that you have just some high level thoughts around?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Sure. If I had your profile correct, there's a margin component, like a cloud margin component to your role as well, is that right? So can we just spend a little bit of time talking about the balance? I think when Generative really started to capture attention, there were concerns across software around gross margin degradation. And we haven't seen it to the degree that was expected. I'm curious from your perspective why that maybe hasn't been the case and how Microsoft's able to control margins to the degree that they have, even though we're seeing strong evidence of an investment cycle also taking place?

Question: Michael Turrin - Wells Fargo & Co - Analyst : How much of it all does macro come into your planning Purview? Because the reason I ask it that way is because this is a long-term technology trend. Inherently, macro should matter somewhat less. But how much is taken into account, just the environment that we're in terms of the planning cycle?

Question: Michael Turrin - Wells Fargo & Co - Analyst : Makes sense. We're down to the last one, I think. I'm curious what you think we'll be talking about in three years. We have this conversation again. Are you still running at the same rapid pace? I hope so. What do you see on the horizon if we're thinking from a three- to five-year perspective?

Question: Michael Turrin - Wells Fargo & Co - Analyst : That's great. Thank you for sharing some of the excitement, making the trip down the coast.

Question: Michael Turrin - Wells Fargo & Co - Analyst : Matt, thanks for the time.