**Thursday. **Today we’re going deep on Microsoft and Meta earnings. If you are curious about how the largest tech companies are converting enormous capex spend into operating results, you’re in luck.
Apart from hyperscaler earnings, we have short notes on inference economics, Robinhood, and letter writing. To work! — Alex
📈 Trending Up #
OpenAI in the big leagues…profits at Samsung…huh? …borrowing costs…EU compute…fusion investment…not being shocked…my time, arriving…agents in production…Seattle unicorns…
Support for open-weight models: Add two more names to the Protect Open AI Models letter as Merge and Amplitude sign up. Merge is private, Amplitude is public. Both are sub-giant. While it’s great to see IBM, Intel, and other giants put their name to the defense of open-weight AI, it’s also winsome to see the next generation of tech leaders do the same.
**More for less: **As Microsoft touts gains in data center efficiency (see below, here’s more), other compute providers are racing to achieve similar results. NScale, a neocloud, is spending $1.65 billion on Anyscale, which builds software that wrings more compute from GPUs. The Great AI Cost Freakout is already working its way through the industry, with model routers, multi-model agentic setups, open-weight models, and more efficient hardware usage helping blunt spend.
- Not a bad exit for Anyscale backers,
though the last money in might have hoped for more. OpenAI’s growth? In an internal meeting, OpenAI CFO Sarah Friar told staff that the company’s “annualized recurring revenue in July exceeded the entire second quarter,” per CNBC, and that “Q2 was no slouch.” Reading this, of *course *July’s run rate at OpenAI was larger than its Q2 results; July is a later month, giving the company more time to grow. Did people worry that OpenAI was shrinking?
- One poster arguedthat Friar was saying that net new ARR added in July was greater than all of Q2, which would make more sense than how we read the original report. And would be fucking incredible for Sam and his backers.
[📉](https://finance.yahoo.com/news/servicenow-pledges-1-5bn-investment-110000403.html) Trending Down
[📉](https://finance.yahoo.com/news/servicenow-pledges-1-5bn-investment-110000403.html)
Chasing momentum…access to Roombas…Qualcomm stock, after earnings…startups building anything other than agentic tooling…Russia-Poland relations…Vance-Israel relations…movie theaters…South Korean stocks…
Open-weight economics: When Moonshot dropped Kimi K3, it added a clause to its license that if you want to serve the model to third-party customers, you have to sign a commercial agreement. Per a16z’s Martin Casado, that take rate is around 30%. That’s a bit higher than I anticipated, but not lethal. The figure simply means that Moonshot would like to win at serving its own models, and that the neocloud biz won’t have the margins we perhaps expected.
Robinhood, after earnings: Shares of the consumer trading giant Robinhood are down a few points in early trading today, despite beating analyst expectations in the period. Crypto revenue shrank (as expected), while the company’s “event contracts revenue of $156 million [in the quarter were] up over 10x.” All told, Robinhood now has “thirteen different business lines that have reached $100 million-plus in annualized revenues,” CFO Shiv Verma said.
- Robinhood looks healthy as a horse. Apart from its growth, the company lowered its “2026 Adjusted Operating Expenses and SBC outlook range,” thanks to efficiency gains. Not bad!
Microsoft’s AI momentum wows the street #
Shares of Microsoft are up 15% this morning, after Redmond announced its Q4 fiscal 2026 results (Q2 2026 calendar). Microsoft beat street expectations, including revenue of $90.0 billion ($87.7 billion expected), and earnings per share of $4.74 ($4.25 expected).
Apart from strong aggregate results, Microsoft also reported a major Azure revenue milestone and accelerated growth in its AI productivity tools, enterprise AI tooling, and even Azure itself. The company detailed strong early signals from shifting two products (GitHub Copilot and M365 Copilot Cowork) to a new pricing model. Microsoft also wowed the street with evidence of efficiency gains in its GPU usage, a promised ‘Superapp’ currently in the works, and faster revenue growth in the current quarter than expense expansion; Microsoft pledged not to go free cash flow negative in the coming year. Let’s dive in:
Azure takes a victory lap: Microsoft reported that Azure generated more than $100 billion in revenue for the first time in its now-closed fiscal 2026. Azure “and other cloud services” grew 43% in the most recent quarter, up from 40%, 39%, 40%, and 39% in the four preceding periods.- Even more, Azure customer “demand continues to exceed available capacity,” while revenue “growth was ahead of expectations driven by efficiency gains across our CPU and GPU fleet as well as process improvements to enable earlier delivery of new capacity.” Azure also saw “stronger-than-expected GitHub Copilot consumption following the June business model change,” and the company is having a whale of a time with its own chips (the Maia 200 accelerator) and its own models (the MAI) family, which are bringing more AI primatives (AI compute, AI models) in-house at the hyperscaler.
A fun chart, via Altimeter’s Jamin Ball: AI for enterprise productivity is accelerating: Microsoft 365 (M365, the company’s subscription productivity suite) is performing well in the AI era, with the company reporting that M365 Copilot seats reached 30 million in the quarter, with “net seat adds more than doubling quarter-over-quarter.”- Do people actually like it? More and more. Microsoft reported that it has “steadily” improved M365 Copilot, leading to “user satisfaction scores” doubling to “an all-time high.” Consumption revenue is rising: M365 Cowork Copilot adds an agent (Copilot) on top of the AI layer (Cowork) of Microsoft productivity software (M365). Microsoft reports that after adding “usage-based billing to Cowork […] thousands of customers [are] already paying for and actively using it.” And that better-than-expected revenue influx from usage-based GitHub Copliot? It was partially predicated on GitHub Copilot surpassing 50 million users (GitHub Copilot revenue grew >60% in the quarter).The Microsoft AI building tools are doing numbers: Microsoft offers a soup-to-nuts enterprise AI infra tool set. Azure provides compute, Fabric handles corporate data, IQ-branded products turn that information into agentic context, Foundry helps companies build agents on top of those components, and Agent 365 provides a single control plane for securing and governing all created agents.- Are people using it? Yeah. Microsoft reported that it now has 100,000 Foundry customers with revenue doubling year-over-year, while “the number of Foundry customers at a one trillion token annualized run rate increased 4X year-over-year.” The company also reported that in just its first two months in-market, “Agent 365 now has nearly 40 million agents registered across tens of thousands of companies.”
In product terms, Microsoft is firing on all cylinders with impressive Azure growth, strong first-party AI results, and evidence that it is a critical player in the larger enterprise AI deployment cycle. Mix in first-party chips and first-party models cutting inference costs, and the picture that emerges is of a company racing to build out capacity to handle increasingly profitable customer demand earned by offering a viable path from traditional work to our agentic future.
On the superapp front, this was long-coming. Microsoft has been talking about ‘collapsing‘ the app stack (Office) into something else, something agent-mediated, for a while now. That Microsoft name-checked OpenClaw during its earnings call is another interesting data point. Put simply, Microsoft could — in a single swing — launch an AI superapp across the world’s Windows install base, let alone its corporate footprint. With first-party models in hand, and increasingly competent small models for local inference, the possibilities are endless.
And the company won’t go broke as it pays for internal investment. Microsoft reported that its headcount fell 2% in its most recent fiscal year, and that it expects “another fiscal year of double-digit revenue and operating income growth” while operating expenses “grow in the mid to high-single digits.” Operating leverage! In the AI era! All while telling investors it expects “to remain free cash flow positive” in its new fiscal year? Investors ate it up. (Azure growth in the current quarter is pipped at 45% by the company, showing even further acceleration.)
- It’s amazing how fast fortunes can change today; OpenAI ruled the roost at the end of 2025, Anthropic took the crown next, and now Microsoft is making a credible run at AI hegemony, albeit through the more boring lens of helping other companies accelerate.
Meta has the opposite quarter #
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