For many companies, spending on AI means spending on Microsoft

Dan Ives, managing director and senior analyst at Wedbush Securities, said he estimates about 70% of artificial intelligence software spending in the last 12 months is tied to the Microsoft ecosystem.

That is in part thanks to the company’s Copilot tool, which can be integrated with its existing suite of products, and its relationship with OpenAI, whose GPT models run on Microsoft’s Azure cloud infrastructure.

Revenue for the Azure cloud business rose 29% in the quarter ended June 30, Microsoft said Tuesday. Analysts expected 30% growth, according to FactSet.

Google parent Alphabet, which has been pouring money into artificial intelligence investments, last week reported slower overall revenue growth for the second quarter.

There is anecdotal evidence that enterprise spending on AI is less frantic than it was a year ago, said Jason Ader, partner and co-group head of the technology, media, and communications sector at financial services company William Blair. He said it appears that companies are focusing on simple and limited applications of AI.

Organizations are expected to spend $38.8 billion on generative AI in 2024, up from $19.4 billion in 2023, according to market research firm International Data Corp. The firm said it doesn’t track quarterly spending.

“Eighteen months ago, I think everybody felt like they had to get in the game," said Chad Simpson, chief information officer of Florida-based City Furniture, about the generative AI spending spree. Now, he said, companies appear to be more tempered.

A starting point

Ader, of William Blair, said that based on his anecdotal research, Copilot for Microsoft 365 seems to be the most popular tool for companies that want to experiment with AI. That is in part because Microsoft’s 365 suite is so widely used and plugging in the Copilot is a natural starting point for many organizations, he said.

Many CIOs say they are also using Microsoft’s GitHub Copilot coding assistant, which Ader said has been gathering steam over the last couple of years. For companies that opt to build applications in house, OpenAI’s GPT model, which runs on Microsoft’s Azure, is another common choice.

City Furniture’s Simpson said his company is using Microsoft GitHub Copilot, which is rolled out to about 80 engineers and tech associates at the company. It is also trying out Copilot for Microsoft 365, available to about 5% of the workforce. “The natural integration that exists if you use the Microsoft stack just lends itself to such ease of use," he said.

Simpson said he isn’t totally sold on Copilot for Microsoft 365. Those with access aren’t using it daily or fully integrating it into their workflows. But he said he is continuing to test it.

Many of the dollars being spent on generative AI today are for testing and experimentation, and there is uncertainty over the value Copilot for Microsoft 365 delivers given the price of $30 a user, Ader said.

Workwear brand Carhartt’s information-technology operating budget for the fiscal year is mostly flat, but CIO Katrina Agusti said she is making sure some funds go to generative AI. It is a single-digit percentage of the overall IT budget, she said. Most of it is being spent with Microsoft, which was already a vendor. That includes a trial group with Copilot for Microsoft 365, she said.

And at Radisson Hotel Group, Global CIO Jaime González-Peralta said spending on generative AI and emerging technologies ranks as his third priority—below enabling business growth and cybersecurity. The money the company is spending on generative AI is going both to EY and Microsoft, he said.

With generative AI, he said, “I prefer to be very prudent."

Write to Isabelle Bousquette at isabelle.bousquette@wsj.com