Microsoft CEO Nadella: AI efficiency drive on deck

Microsoft CEO Satya Nadella said the next year will bring software and applications designed to make AI token usage more efficient.

Speaking at the Morgan Stanley Technology, Media & Telecom Conference, Nadella riffed on how AI was reinventing knowledge work. He also noted that AI still is not "fully cracked" on multiple fronts.

But the efficiency drive for AI was the big takeaway. He said:

"I was looking at why are we spending so many tokens on all this? Sometimes it's kind of the most token inefficient things. The smart thing that I think everybody is going to start doing in the next year is tools use. That's sort of all software. And that is the way you make AI tokens efficient. Even if you're all AI pilled, you say I need a lot more software to make my AI efficient. That's another way this new world will be born."

• Microsoft Q2 strong, Azure growth of 39%, OpenAI is 45% of RPO

Here are some of the other takeaways from Nadella's talk:

User interface to universal interface. Nadella added that agentic AI will have a big impact on the user interface, which will be more "universal interface," for all of computing.

The line between innovation and enterprise use. Nadella said OpenClaw is fascinating, but there are security concerns. "I can't launch OpenClaw at Microsoft. It just wouldn't work. I don't have permission to do that because that would be considered Microsoft launching a virus. I mean that's just not a thing. But at the same time, it's a fantastic innovation," he said.

The importance of WorkIQ, the database under M365. "It's a stateful agent," said Nadella. "You can think of WorkIQ as our frontier model. It's basically the data plus the model embedded together. That's where CIOs see the value. It's compounding of the network effects of intelligence."

Frontier models. Nadella said enterprises will go multi-model. Multiple models will also require careful design and architecture. "The context layer should be decoupled," said Nadella.

Nadella added that Copilot is multi-model across various applications such as GitHub or M365.

Few zero-sum AI battles. Nadella said there are very few zero-sum battles in AI. The winner-take-all approach is overstated, he added. "I'm always looking for what's the non-zero sum where we can add value to our customers," said Nadella, who also noted that there are zero-sum battles where Microsoft will compete.

Custom silicon. Nadella said Microsoft's custom silicon efforts are about total cost of ownership. "You can't be upside down on cost. Now my belief is, since this is a multi-sort of generation thing, it's not about any one time," said Nadella. Microsoft launches Maia 200 as custom AI silicon accelerates

He added that there's no guarantee your custom silicon will always lead. "Make sure I'm also getting everybody else's innovation in, use software to then schedule across all of this and manage TCO by generation," said Nadella.

Capital spending. "It's a full-on system upgrade of everything, the network, the compute, the storage, this AI accelerator. And that's all obviously all exploding. And so therefore, the capital intensity increases," he said.