Insider Brief
- Microsoft CEO Satya Nadella identified quantum computing as the next major accelerator for cloud technology, signaling a shift toward long-term investments beyond AI and traditional infrastructure.
- The company announced the world’s first operational deployment of a Level 2 quantum computer—capable of error correction and logical qubit preservation — in partnership with Atom Computing.
- Microsoft expanded its global data center footprint to over 400 sites and added two gigawatts of new capacity, equipping every Azure region with liquid cooling to support advanced workloads like quantum and AI.
Microsoft CEO Satya Nadella said quantum computing will be the next major accelerator in cloud technology, marking a notable shift in the company’s long-term strategic focus. The statement, made during the company’s fiscal year 2025 fourth-quarter earnings call and posted on Investor.com, signaled Microsoft’s intent to expand beyond traditional cloud and AI infrastructure and invest in technologies with longer time horizons.
“The next big accelerator in the cloud will be quantum and I’m excited about our progress,” said Nadella
The remarks came alongside better-than-expected financial results. Microsoft reported $76.4 billion in quarterly revenue, a year-over-year increase of more than 18%. Earnings per share rose to $3.65, beating Wall Street estimates of $3.37. Cloud services, particularly Azure, drove much of the growth, with Azure’s annual revenue rising to $75 billion, up 34%, according to the earnings statement.
Quantum Moves Into Deployment Phase
Microsoft’s commitment to quantum is moving beyond the lab and onto the balance sheet. Earlier in July, the company said it had achieved the first operational deployment of what it described as a “Level 2” quantum computer, in partnership with Atom Computing. A Level 2 quantum computer is often used when describing a quantum system that implements quantum error correction and can preserve logical qubits over time. While details remain limited, this move positions Microsoft as one of the few firms to claim a functional quantum system accessible through commercial infrastructure.
For now, as seen in the earnings report, quantum computing is not contributing meaningful revenue. But Microsoft is positioning it as the next platform wave, one that will reshape infrastructure and workloads. The deployment of the Atom-Microsoft system suggests the company intends to lead in this space, not just participate.
In Nadella’s view, quantum should closely follow the same trajectory as past accelerators, such as GPUs and AI models, becoming deeply embedded into Microsoft’s growing data center footprint. As Nadella framed it, Microsoft’s approach to innovation spans “decade-long arcs,” with milestones delivered quarter by quarter.
In fact, in recent quarters, Microsoft appears to be taking direct action to prepare for quantum’s contribution to the company’s bottom line. Every Azure region is now equipped to support liquid cooling, a necessary feature for advanced computing including quantum. The company has expanded to over 400 data centers in 70 regions globally, and added more than two gigawatts of new computing capacity in the past 12 months — a scale that should accommodate both classical and emerging quantum workloads.
Cloud and AI Workloads Expand
While quantum remains an early-stage bet, AI continues to dominate Microsoft’s near-term roadmap and earnings. Azure revenue growth, which includes AI services, reached 37% in constant currency and is expected to maintain that pace in Q1 2026.
Microsoft’s AI infrastructure now supports over 500 trillion tokens served annually through its Foundry APIs, a sevenfold increase from the previous year. Foundry enables customers to run AI applications across models from Microsoft, OpenAI, Meta, and others, including emerging players such as Mistral AI. The company said Foundry now supports 14,000 customers, including firms like NASDAQ, which use AI agents to automate tasks such as board meeting preparation.
The company also expanded its Microsoft Fabric platform — a data and analytics engine that integrates SQL, NoSQL, and semantic models — reporting 55% revenue growth and over 25,000 customers. Fabric plays a central role in grounding AI systems with relevant context, a critical requirement for enterprise adoption.
AI Drives Product Adoption
On the application layer, Microsoft’s suite of AI-enabled products continues to grow rapidly. Its family of “Copilot” apps now serves over 100 million monthly users, with more than 800 million people using some AI feature across Microsoft products. Microsoft 365 Copilot, the AI assistant for Office applications, posted its largest quarter of new seat sales, with customers such as Barclays and UBS committing to company-wide rollouts.
GitHub Copilot, Microsoft’s AI assistant for developers, now has 20 million users. Usage increased 75% quarter-over-quarter among enterprise customers. Microsoft said GitHub Copilot has moved from simple code completion to operating in full “agent mode,” with asynchronous capabilities that automate development tasks without constant user input.
The momentum extends to specialized markets. In healthcare, Microsoft’s ambient AI system recorded over 13 million physician-patient interactions this quarter, helping reduce documentation workloads. In security, Microsoft Defender now protects nearly two million generative AI applications.
Monetization Strategy Reflects AI Complexity
During the Q&A portion of the call, analysts pressed Microsoft leadership on how it plans to monetize the surge in AI use, particularly for SaaS applications like Microsoft 365 and Dynamics 365. Nadella and CFO Amy Hood said they expect a mix of per-user pricing and consumption-based models to evolve, depending on the complexity and frequency of AI interactions.
Microsoft executives emphasized that AI tools are becoming deeply embedded in workstreams and applications, no longer just add-ons. Nadella cited GitHub Copilot as a model, noting that its evolution from basic code suggestions to full-fledged agents points to broader adoption patterns across all business software.
AI workloads are also reshaping Microsoft’s infrastructure. Hood reported that Microsoft Cloud gross margins declined slightly to 68%, driven by the costs of scaling AI systems. Yet operating income for the quarter still grew 17% year-over-year, thanks to demand in cloud services and tight control on expenses.
Market Response and Forward Guidance
Investors responded favorably to the results. Microsoft shares rose 0.29% during regular trading and gained another 0.47% after hours, pushing the stock to $515, closing in on its 52-week high. The company now holds a market capitalization of close to $4 trillion.
Looking ahead, Microsoft expects double-digit growth in revenue and operating income for fiscal 2026. The company projects continued Azure strength and estimates Q1 Azure revenue growth of 37%. Capital expenditures will moderate slightly, though Microsoft still expects to spend over $30 billion next quarter, with more than half of that directed toward long-lived infrastructure.
Executives warned that AI infrastructure demand is likely to outpace supply through at least the first half of fiscal 2026. But they expressed confidence in the company’s ability to scale — and to define the architecture of a new era of computing shaped by AI and quantum technologies.
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