Microsoft Xbox Hardware Revenue Plummets 33% as Cloud and AI Businesses Surge
Tech giant reports $82.9B total revenue with AI business hitting $37B annual run rate, while gaming division faces leadership transition and identity crisis
Quick Look
- Microsoft reported a 33% decline in Xbox hardware revenue alongside a 5% drop in Xbox content and services, as the company revealed its latest earnings.
- Despite gaming struggles, Microsoft's cloud business generated $54.5 billion in revenue, up 29% year-over-year, while its AI business reached a $37 billion annual run rate, up 123%.
- Total revenue reached $82.9 billion.
AI-generated summary
Microsoft's Xbox hardware revenue continues to tumble, with the company revealing a 33 percent decline as part of its earnings report released on Wednesday. Even though the rest of Microsoft's consumer-focused division took a dip, the company's cloud and productivity businesses continue to soar, driving the company toward $82.9 billion in revenue. Along with declining Xbox hardware revenue, Microsoft reported a 5 percent drop in Xbox content and services as well. Microsoft has seen a significant amount of executive turnover over the past few months, with the retirement of Xbox chief CEO Phil Spencer and the departure of former Xbox president Sarah Bond. This has left former Microsoft CoreAI head Asha Sharma in charge of the gaming giant, which has struggled with its identity in recent years. Already, Sharma has lowered the price of Xbox Game Pass and has taken steps to rebuild Xbox's identity. In addition to an executive shuffle, Microsoft has only pushed further into AI in recent months, with the company reporting $54.5 billion in revenue from its cloud business, marking a 29 percent year over year increase. "We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era," Microsoft CEO Satya Nadella said in the press release. "Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year." Revenue earned by Azure and other cloud services went up 40 percent. Microsoft 365 Copilot saw growth as well, with paid seats jumping from 15 million in the previous quarter to 20 million. Microsoft has continued building out its productivity suite with new AI features, including the launch of "vibe working" features across Excel, Word, and PowerPoint. Meanwhile, revenue earned by Microsoft's devices business decreased by 2 percent as it grapples with a global memory shortage that has led it to hike the prices of its Surface devices. The launch of new Surface Pro and Surface Laptop models in the coming months could help reverse the decline.
