What a time to be live. The main thing happening today is Microsoft reporting record revenue again. Live from 12-3 GMT, here's your Order of Play plus an Op-Ed from Luke on Microsoft’s Moat.

1:00 PM - Eric Landau, Co-Founder & CEO at Encord

1:15 PM - Larissa Schneider, Co-Founder & COO at Unframe AI

1:30 PM - Arthur Waller, Co-Founder & CEO at Pennylane

1:45 PM - Paul Bonnet, General Partner at 20VC

2:00 PM - Nick Bostrom, Founder at Macrostrategy Research Initiative

2:15 PM - Eugenia Kuyda, Founder & CEO at Wabi

What’s Happening Today

Microsoft has just reported its tenth consecutive quarter of record revenue.

The company brought in $92.3 billion in the quarter ending September, beating Wall Street's expectations and shares rose more than 4% following the results.

Much of the growth came from Azure, Microsoft's cloud computing platform, which grew 48% as demand for AI services increased. Meanwhile, revenue from its AI development platform, Foundry, more than tripled.

The order book rose 73% to $677bn, and CFO Amy Hood said customer demand "continues to exceed available supply". To keep up, Microsoft spent $45.2bn on capex this quarter and opened 24 new data centres across five continents. Hood expects it to be over $50bn next quarter.

It wasn't all good news. Windows OEM and devices revenue fell 22%, and Microsoft has offered buyouts to a big chunk of its workforce with around 60,000 employees eligible. That's the second such offer this year after the April early retirement programme.

We're getting into all of it on today's show at 12 GMT.

Daily Op-Ed — Microsoft’s Moat

Microsoft shares ripped about 4% after hours yesterday after they beat earnings expectations. Azure revenue alone was up 48%. But Azure isn’t actually the fastest growing of the big three hyperscalers - on a percentage basis Alphabet’s Google Cloud business grew considerably faster (103%). So why did the market respond so well?

In short the stock is ripping not because Azure is the fastest-growing cloud but because Microsoft is the only hyperscaler that’s growing fast while also generating meaningful FCF.

In the latest quarter Microsoft produced $18.6B of FCF. Alphabet’s free cash flow was roughly $9B, Meta’s turned negative. They’re all spending a bunch on their AI infrastructure but the market is rewarding the ability to fund the AI build-out without hitting the balance sheet too hard.⁠

Microsoft have been able to frame themselves as the control centre instead of just selling capacity like the others - Ronan and I talked about their unique moat on Monday’s show. What they’re doing full stack is incredibly clever. They’re uniquely combining first-party agents (Copilot as the “new OS for work”), a model-agnostic platform (Foundry revenue more than tripled) and context layers. So although AWS leads on infrastructure and Google is leading on models and TPUs, neither of them have the same depth of enterprise distribution.

Microsoft deliberately reorganised reporting into an “Agents and Infra” segment that groups Azure with Microsoft 365. The pull-through demand for Azure comes through Copilot which is already embedded in the tools everyone uses. More pure infra players can’t compete with that.

Finally it’s worth mentioning that because of all this, the demand is very broad and still exceeds supply. Growth is coming both from large enterprises and smaller customers. Google’s cloud growth is more exposed to TPU capacity sales and a handful of large AI customers. AWS lacks a comparable owned application layer to pull compute through.

Microsoft’s premium can of course re-allocate quickly if AWS or Google show clearer cash conversion but no doubt they are building a deep moat at the agent layer on top of an installed base no one else has.

- Luke

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