When Satya Nadella entered Microsoft’s C-suite in 2014, the company wasn’t one of the tech darlings dazzling Wall Street.
After founder Bill Gates handed the CEO role to Steve Ballmer in 2000 - and until Ballmer stepped down in 2014 - Microsoft’s stock price essentially followed the market. The company was still printing money thanks to its dominance in personal computing software, but it couldn’t draw futurist headlines like those chasing companies in FAANG, a catchall acronym for Facebook, Apple, Amazon, Netflix and Google - the buzzy tech stocks of the early 2010s.
While Apple and Google seized the smartphone market, Microsoft fumbled its Windows-powered cellphone. As Amazon revolutionized retail, it also beat Microsoft to the punch on cloud computing with its debut of Amazon Web Services in 2002.
Microsoft was resting on its laurels, even as those behind the scenes feverishly tried to break into new markets with ultimately doomed products like the Zune.
Enter Nadella, the engineer. Climbing through the ranks in various product divisions, he had found a way at each stop to bring Microsoft into a new digital age: take it to the cloud.
As a concept, cloud computing is abstract. It took years to bring customers - both commercial and consumer - under Microsoft’s cloud umbrella, Azure. But the bet paid off.
And with the winnings, Nadella and others are pushing more chips each year into a technology better known than cloud computing but perhaps even less understood: artificial intelligence.
From July 2024 through June 2025, the company projects it will spend $80 billion on AI infrastructure, mostly to build data centers. That represents almost 33% of Microsoft’s total revenue for 2024, which the company reported as $245 billion.
Microsoft isn’t all in, but it’s still a big bet for a company worth $2.9 trillion.
To the cloud
You’d be hard-pressed to find someone who says, “Send that to me in a WordPerfect document.” Nobody tracks their company budget in a Lotus 1-2-3 spreadsheet. Two applications once ubiquitous for computer users in the 1980s are now completely lost to history, thanks to Microsoft Office.
Those Office products - chiefly Word, PowerPoint and Excel - once drove the Redmond-based tech giant. Under Nadella, cloud computing outpaced them all.
When Nadella became CEO, Office and the cloud were essentially tied in revenue. Office brought in $24.3 billion; Microsoft’s cloud division reported $21.7 billion.
Cloud computing is now booming for Microsoft. Last year, Intelligent Cloud reported more than $100 billion in annual sales. Office revenue was about half that.
Though tens of thousands of employees work under Nadella to develop Microsoft’s successful cloud products, it’s the CEO who’s credited with turning around a company that failed for more than a decade to stay on the cutting edge.
Windows didn’t make a dent in the smartphone market, now dominated by Apple’s iOS and Google’s Android operating systems. The ill-fated Zune didn’t dethrone the iPod. And though MSN once seemed like a contender in search, the company lost interest before Google captured the market.
Though now a success, Microsoft was late to launch its cloud platform, Azure. Amazon Web Services entered the market in 2002 - six years before Azure did.
Amazon spent that time gobbling up market share. While Microsoft and others grew cloud services slowly, AWS was humming. Amazon still leads the cloud market with about 30%, according to Synergy Research Group. But Microsoft’s share has climbed to 21%.
After more than a decade of bringing customers to the cloud, Nadella and Microsoft are now pulling them toward AI - a technology that’s costly, unreliable and resource-heavy, yet potentially extraordinarily lucrative.
General-purpose technology
Tech companies have developed large language models and machine learning products over the past decade that fall under AI. These technologies allow a robot vacuum to clean more efficiently and produce better predictive ads while you browse the internet.
But now, flashier products dominate the zeitgeist. Chatbots that craft essays and image generators that produce uncanny pictures are widely available to the public.
The tech industry is scrambling to include AI - or at least the term “AI” - in new products, earnings calls and marketing. Facebook parent company Meta injected AI chatbots into its platforms, while Expedia uses AI for travel planning. Google’s search is now powered by AI. For about $1,000, you can even buy the world’s first AI-enabled grill from a company called Brisk It.
Microsoft’s biggest consumer-facing AI product has been Copilot, a complement to Office that can automate tasks.
Behind the scenes, Microsoft plans to pour money into AI. In a regulatory filing from October, Microsoft said it has committed $13 billion to OpenAI, the research organization that develops chatbots and image generators. The investment is so large that Microsoft reported a $683 million expense due to its equity stake in ChatGPT’s maker.
As Wall Street rides the AI hype roller coaster, Microsoft claims it’s chasing the technology almost altruistically. The company sees AI as a general-purpose technology.
“A single-purpose technology is a great advancement and helps a lot of people,” said Mary Snapp, vice president of strategic initiatives at Microsoft, in an interview with The Seattle Times. “Like my electric sewing machine when I was growing up. Boy, I sewed a lot of clothes and it got me to the prom, but it didn’t do anything else.”
But general-purpose technology, she said, is like electricity - it drives innovation and boosts productivity.
An ambassador for Microsoft’s policy and tech efforts, Snapp travels globally to demystify AI and advocate for retraining workforces. She likens it to the government driving social acceptance of electricity in rural areas in the 1930s.
“We needed people to know how to run electrical appliances at scale and in industrial settings,” Snapp said. “We’re going to need the same thing with artificial intelligence.”
AI in action
In early March, Microsoft President Brad Smith visited Tanzania to observe Microsoft’s AI for Good Research Lab in the field. The pitch: improved productivity and efficiency - anywhere. So, how could it help conservation?
The lab partnered with the Wild Nature Institute, a conservation group, to track giraffes in East Africa.
“Turns out that AI is critical,” Smith said in an interview with The Seattle Times. “Every giraffe is unique, so for decades, these scientists would go out into the wild and they would have these diagrams of the giraffes that were drawn. Now you take a photograph, AI crops it and then it instantaneously matches that giraffe to the giraffe in the data set.”
Outside of research, Microsoft has already introduced AI to customers. Deb Cupp, president of Microsoft’s business operations across North and South America, leads an $80 billion product portfolio now tasked with delivering and explaining AI to clients.
“We spent time explaining what AI was and where the areas of opportunity actually were,” she said. “We started to help customers think through whether they should try and create use cases, finding ways to fit in the technology. But the answer is actually the complete opposite.”
Renton-based Providence Health & Services has worked with Microsoft to identify AI use cases. Health care has been digitizing over the past 10 to 15 years - a shift Providence says has positioned it well for AI.
Susan Huang, chief physician executive for Providence, said AI already has more buy-in than the organization’s move to the cloud years ago.
“AI is part of the colloquial dialogue, whereas cloud-based services were somewhat niche,” Huang said. “Whether you’re a caregiver, doctor or nurse, everyone has an idea for how AI can be applied. And they’re already using it outside and in their personal lives.”
Hype or real?
Two major issues loom over AI.
It uses a lot of energy. The International Energy Agency said in a 2023 report that global electricity demand from data centers could double from 2022 to 2026, partly because of AI. That demand would roughly equal Japan’s entire electricity consumption.
A traditional Google search uses about 0.3 watt-hours. A ChatGPT request uses 2.9 watt-hours - like running an LED bulb for 17 minutes.
Essentially, Microsoft is looking for ways to cut back on energy and water use while improving AI efficiency. If the models and code become more efficient, each request uses less energy.
AI’s other issue: hallucinations.
Google’s Gemini feature frequently gives incorrect information, drawing from unreliable sources. ChatGPT has made up facts and struggles with word problems. Grok, the AI on X, often aggregates jokes and reports them as news.
A study from the Columbia Journalism Review found that AI search tools were “generally bad at declining to answer questions they couldn’t answer accurately, offering incorrect or speculative answers instead.”
Former Microsoft Chief Technology Officer Nathan Myrhvold believes it will take a miracle - or several - for AI to reach human-level reasoning.
At GeekWire’s Microsoft@50 anniversary event on March 20, Myrhvold expressed optimism. But he said AI still lacks the ability to reason abstractly as humans do.
“And that could happen tomorrow. Or maybe it already happened tonight and they just haven’t told us,” Myrhvold said. “Or it could take another 10 years.”
For now, it’s about return on investment and keeping Wall Street happy. Microsoft’s AI revenue isn’t broken out cleanly - it’s woven across revenue streams.
But Nadella gave analysts a confident pitch in January during the latest earnings call. The company said its AI business has a revenue run rate - a projection for the coming year - of $13 billion. On the same day, Microsoft revealed it had spent $22.6 billion in one quarter on AI infrastructure. Nadella and the company see those rising costs as necessary.
“As AI becomes more efficient and accessible,” Nadella said, “we will see exponentially more demand.”