Amy Hood: Thanks for that question, and maybe I’ll take that Satya if you — if you want to add. In general, our seat growth has — it does come from all segments, but with particular strength in small and mid-sized businesses, as well as what we call the frontline worker opportunity. And that has been, I would say, looking back a number of quarters where the majority of our seat growth has gone. And while obviously, it slowed a bit to your point, I think the fact that we’re still able to add seats at this level speaks to the broadening nature of what Microsoft 365 needs. It’s more applicable to more people. And so I think many people have thought, oh my goodness, you’ve got a lot of customers already. And we look and say, how many people when you expand what Microsoft 365 means, whether it’s the security or it means analytics or it means Teams, it means lots of things in an expanding definition.
It applies to more types of workers. And frankly, the value is such, especially on the small business front, where it’s to the point where I think people feel like it’s a great way to spend even the spend money they have is — this remains a pretty compelling offer.
Bradley Sills: Thank you.
Brett Iversen: Thanks, Brad. Joe, next question, please.
Operator: Your next question comes from the line of Brent Bracelin with Piper Sandler. Please proceed.
Brent Bracelin: Thank you. Good afternoon. One thing that really stood out to me was the intelligent cloud segment operating margins. These came in, I think, at the highest level in six years, despite elevated AI investments. Was there a one-time tailwind here that helped? Or are you at the point where Azure has got economies of scale, where Microsoft could sustain high margins even with an ambitious AI investment cycle?
Amy Hood: You think — thanks for that question. I think there are a couple things going on and I do — I would say in particular, this was a very good leverage quarter in that segment. Number one, the Azure revenue growth and the stability we’re seeing in it, absolutely is that help the operating leverage. The second component of that is in our core Azure business. The team continues to deliver thoughtful gross margin improvement across both technical decisions, software implementations. Our teams on the infrastructure build side have done really good work to deliver that, and so that’s been helpful as well. And then, of course, on operating expenses, there’s been a good focus on continuing even within that segment, to make sure we’re focusing that work on leading in the AI transition with Azure.
And so you’re right, even as we’re investing in AI infrastructure, which will and should show up as revenue, it’ll also show up in COGS and still deliver good margin. But this does have a slightly — as I talked about earlier, easier comp in Q1 and Q2, given it was some of our highest growth operating expense quarters in our company’s history a year ago.
Brent Bracelin: Makes sense. Thank you.
Brett Iversen: Thanks, Brent. Joe, we have time for one last question.
Operator: Our last question will come from the line of Gregg Moskowitz with Mizuho. Please proceed.
Gregg Moskowitz: Okay. Thank you very much for taking the question. And maybe just a follow-up to what Brent was just asking about, but on the gross margin line. Amy, the Microsoft cloud gross margin is up 2 points year-over-year, excluding the useful life change, a little more improvement than we’ve seen in some time and some investors were worried that it might go in the other direction, given increased AI investments. And so, as you look forward, do you think that you could drive some continued gross margin improvement over the medium term and even as higher CapEx will filter into the model? Thanks.
Amy Hood: Yeah. Let me break that into two components, because they’re both important and it’s a really good question, Gregg. On our core business, the core Azure business, the core Office 365, M365 business, Dynamics business, they’re — they continue to deliver gross margin year-over-year improvements in the core. And so that, like in other quarters has helped this quarter. In addition, what Satya mentioned earlier in a question, and I just want to take every chance to reiterate it, if you have a consistent infrastructure from the platform all the way up through its layers, then every capital dollar we spend, if we optimize revenue against it, we will have great leverage, because wherever demand shows up in the layers, whether it’s at the SaaS layer, whether it’s at the infrastructure layer, whether it’s for training workloads, we’re able to quickly put our infrastructure to work generating revenue, or on our Bing workloads.
I mean, I should have mentioned all the consumer workloads use the same frame. And so when you think about our investment in AI, yes, it will — because we’re committed to leading this wave and see demand, you will see that impact in COGS growth. But what we’re committed to doing is making sure it’s highly leveraged and making sure you see the same growth in revenue. And I think on occasion, you may see something pick up 1 or 2 points and the other one not quite get there, but the point is, it’s going to be very well paired because of the choices we’ve made over the past, frankly, numerous years, to get to a point where that infrastructure is consistent.
Satya Nadella: And I’ll just add that it’ll be very well paired at the company level. I realize all of you care a lot about each one of our segments and each one of our KPIs, and I do too, but at the end of the day, our stack and the way it works, the way we do our capital allocation, the way we think about even the optimization of the demand to utilization is across the entirety of all of our segments and all of our products.
Gregg Moskowitz: Very helpful. Thanks.
Brett Iversen: Thanks, Gregg. That wraps up the Q&A portion of today’s earnings call. Thank you for join us today and we look-forward to speaking with all of you soon.
Amy Hood: Thank you.
Satya Nadella: Thank you.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
