Microsoft reported fiscal first-quarter 2024 cloud revenue of $25 billion, a 24% increase year over year. As the hyperscaler tries to sustain that growth, two main variables are set to increase the hyperscaler's cloud computing demand in upcoming quarters: economic pressures limiting cloud budgets and spiking energy costs.

Though enterprises and small to medium-size businesses (SMBs) have less money floating around, Microsoft touted its focus on optimizing the performance and value of the cloud services customers do use.

"Everybody's going to optimize their build," Microsoft CEO Satya Nadella said during the company's latest earnings conference. "Our incentives in our customer success teams are lined up with them helping customer 'do more with less,'" he said.

"What we did see through the quarter is a real focus — both by customers, but also by our sales and customer success teams — on going proactively to customers and making sure we are helping them optimize their workloads," CFO Amy Hood added. As Q1's macroeconomic environment grew more complicated, Microsoft heightened its focus on cloud optimizations, which "bring value even as budgets are still growing," she said.

The big winner here will be the public cloud, where scalability offsets the risk of purchasing too much or not enough infrastructure resources. "From a customer perspective, the best way for them to align their spend with what is uncertain demand is to move to the cloud," Nadella said. "We see the value prop of the cloud."

And the best way to hedge against the risk of volatile supply chain and energy costs is to increase the energy efficiency of compute, like moving from a on-premises environment to the cloud. "For us, we look at this and say, this is a period where cloud’s going to gain share, because we’re still in the early innings of adoption," Nadella said. "We just want to invest, going into it, with that mindset and build long-term customer loyalty."

Q1 2024 also marked the second quarter in a row where Microsoft Azure's constant currency growth came in below the company's guidance, and investors shared concerns that there might be "an inherent volatility in that business that's just harder to forecast."

According to Hood, "there is some inherent volatility to that number – a point here or there, and you’ve heard me say it when we’ve been a point better, and you’ve heard me say it when we’ve been a point worse," she told investors.

Despite being lower than expected, "that is still a very large growth rate" across all segments and geographies, rendering the results "generally in line with where we expected," she explained. It's the nuance of digitization that investors are still seeing.

But this is also "the tailwind that helps customers solve problems. This is still the way to build growth in your business. And yet, you still want to optimize your workloads. You still want to run them the most efficiently so that you can make room for new workload growth," Hood said. "We saw that across all segments."

Microsoft plans to invest in "making that happen" in customer success, optimizations, and engineering to build "even better solutions to optimize against," Hood said. "That will remain top of mind for us."