2025 could be the year we get a glimpse of AI’s true potential.
According to Microsoft (NASDAQ: MSFT) CEO Satya Nadella, businesses are moving beyond tentative experiments and embracing AI at an enterprise level, eager to unlock its full potential and reap substantial returns on investment.
This shift is illustrated by the explosive growth in the company’s AI business, now boasting an annual revenue run rate exceeding $13 billion—a staggering 175% jump year-over-year.
Without a doubt, Microsoft is aiming high.
On cloud 9
Microsoft is positioning Azure as the AI infrastructure layer of choice.
To support its ambition, Azure is built as a cohesive system, bringing together data centres, networks, racks, and silicon, with every component integrated with efficiency in mind.
The strategy is working.
Swiss banking giant UBS Group AG (NYSE: UBS), for example, moved mainframe workloads amounting to nearly 400 billion records and two petabytes of data to Microsoft Azure.
To meet the ever-growing demand, Microsoft has more than doubled its data centre capacity in the last three years.
The past year alone saw the company’s largest capacity increase ever.
This aggressive expansion is aimed at ensuring Azure can handle both the cloud workloads of today and the demanding, next-generation AI workloads of tomorrow.
Meanwhile, Microsoft’s partnership with OpenAI, the creator of ChatGPT, to proven to be fruitful.
As the exclusive provider of OpenAI’s Azure-based API, Microsoft is uniquely positioned to capitalise on OpenAI’s growing success.
That said, there’s a new game in town called DeepSeek.
A DeepSeeking missile
The AI world has been abuzz this week with the release of DeepSeek, a Chinese AI model.
In simple terms, DeepSeek provides a ChatGPT-level experience, reportedly achieved at a fraction of the cost compared to major US tech companies.
As an aside, it’s worth noting that the often-cited US$6 million training cost for DeepSeek only reflects the final training run. All the other stuff—the research, the experiments with data, architectures, algorithms—that’s not included in that number.
Either way, DeepSeek is challenging the status quo and forcing everyone to rethink what’s possible in the AI world.
Naturally, the spotlight has fallen on OpenAI — and by association, Microsoft.
But here’s the thing: Microsoft is not exclusively tethered to OpenAI.
For example, Microsoft’s Azure AI Foundry, a platform for building AI applications, supports both OpenAI’s leading models and a diverse selection of over 1,800 open-source AI models.
And here’s the kicker: Microsoft added DeepSeek’s R1 model on Thursday.
The move shows that the tech giant is spreading its bets while still maintaining a close relationship with OpenAI.
Notably, OpenAI made a large Azure commitment last week.
Get Smarts: Staying focused amid the noise
Investors can sometimes be distracted by the hype or rapid changes in the industry.
That’s why it’s important to stay focused on the right things.
While speculation is rife on the implication of DeepSeek, at the Smart All Stars Portfolio, we’re more interested in the actual use cases and revenue that AI brings.
For instance, Microsoft said that customers who purchased Co-pilot in its first quarter of availability has collectively increased the number of paid seat by more than 10x over the past 18 months.
At the same time, daily Co-pilot usage per user has also doubled compared to the previous quarter.
Elsewhere, new solutions such as Co-pilot Studio is gaining traction with over 160,000 organisations using the platform to create more than 400,000 custom AI agents.
Such updates matter to us.
In our book, it’s more important to figure out whether a company’s growth is sustainable than to dream about what could happen next.
After all, where the business goes, eventually the stock will follow.
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Disclosure: Chin Hui Leong owns shares of Microsoft.
