Microsoft Shares Surge as Cloud Business Grows With AI Push

Microsoft Cloud Service

Microsoft’s shares surged by as much as 5% in after-hours trading on Thursday following the release of the software giant’s fiscal third-quarter results, which surpassed the expectations of Wall Street analysts.

Here’s a breakdown of how Microsoft’s performance compared to the consensus estimates from the London Stock Exchange Group (LSEG):

  • Earnings per share came in at $2.94, exceeding the expected $2.82.
  • Revenue reached $61.86 billion, surpassing the anticipated $60.80 billion.

According to a statement, Microsoft’s total revenue for the quarter, which ended on March 31, increased by 17% year-over-year. Net income rose to $21.94 billion, or $2.94 per share, up from $18.30 billion, or $2.45 per share, in the same quarter of the previous year.

Regarding future guidance, Microsoft’s Chief Financial Officer, Amy Hood, projected revenue of $64 billion for the fiscal fourth quarter, slightly below the LSEG consensus of $64.5 billion. Hood’s forecast implies an operating margin of 42.3%, higher than the StreetAccount consensus of 41.5%.

Microsoft Cloud Service

Hood noted, “Currently, near-term AI demand is a bit higher than our available capacity.” To address this, Microsoft has been ramping up its capital expenditures to secure Nvidia graphics processing units for training and running artificial intelligence models.

In the fiscal third quarter, Microsoft’s Intelligent Cloud segment, which includes Azure public cloud, Windows Server, Nuance, and GitHub, generated $26.71 billion in revenue, marking a 21% increase compared to the same period last year. This exceeded analysts’ expectations of $26.26 billion.

Revenue from Azure and other cloud services grew by 31%, outpacing the previous quarter’s growth rate of 30%. Within Azure’s growth, 7 percentage points were attributed to AI, up from 6 points in the previous quarter.

Microsoft provides cloud services for the ChatGPT chatbot from startup OpenAI, and there has been growing adoption of Azure AI services by companies for tasks such as summarizing information and writing documents.

Microsoft’s GitHub Copilot code-generation tool now boasts 1.8 million paid subscribers, CEO Satya Nadella revealed during a conference call with analysts.

The Productivity and Business Processes unit, which includes Office productivity software, LinkedIn, and Dynamics customer-relationship management software, generated $19.57 billion in revenue, representing a roughly 12% increase.

Microsoft Cloud Service

This unit saw the first full quarter of sales of the Copilot add-on for commercial Microsoft 365 subscriptions. Microsoft’s More Personal Computing revenue totaled $15.58 billion, up approximately 18% year-over-year.

This segment, which includes the Windows operating system, Surface PCs, video games, and search, surpassed analysts’ expectations of $15.08 billion. Revenue from Xbox content and services increased by 62%, driven by the acquisition of game publisher Activision Blizzard.

Hood reports that sales of Windows licenses to device makers increased by 11%, supported by slightly better-than-expected demand for PCs.

During the quarter, Microsoft introduced Surface PCs with a key for quick access to the Copilot chatbot, and the company began offering access to Copilot for small businesses with Microsoft 365 subscriptions.

Additionally, Mustafa Suleyman, co-founder of artificial intelligence lab DeepMind, was hired to lead a new Microsoft AI group. Excluding the after-hours movement, Microsoft’s stock has risen by 6% this year, aligning with the performance of the S&P 500 index.

Mason Williams
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