Microsoft cloud growth accelerates on back of AI push

Microsoft
shares
rose
as
much
as
5%
in
extended
trading
on
Thursday
after
the
software
maker
issued
fiscal
third-quarter
results
that
outdid
Wall
Street’s
expectations.

Here’s
how
the
company
did
in
comparison
with
the
consensus
from
LSEG: 

• 
  Earnings
  per
  share:
  $2.94
  vs.
  $2.82
  expected
• 
  Revenue:
  $61.86
  vs.
  $60.80
  billion
  expected

Microsoft’s
total
revenue
grew
17%
year
over
year
in
the
quarter,
which
ended
on
March
31,
according
to
a

statement.
Net
income,
at
$21.94
billion,
or
$2.94
per
share,
was
up
from
$18.30
billion,
or
$2.45
per
share
in
the
year-ago
quarter.

With
respect
to
guidance,
Microsoft’s
finance
chief,
Amy
Hood,
called
for
$64
billion
in
revenue
for
the
fiscal
fourth
quarter,
below
the
$64.5
billion
LSEG
consensus.
Hood’s
forecast
implies
an
operating
margin
of
42.3%,
ahead
of
the
StreetAccount
consensus
of
41.5%.

“Currently,
near-term
AI
demand
is
a
bit
higher
than
our
available
capacity,”
Hood
said.
Microsoft
has
been
increasing
its
capital
expenditures
to
secure


Nvidia
graphics
processing
units
for
training
and
running
artificial
intelligence
models.

During
the
fiscal
third
quarter,
Microsoft’s
Intelligent
Cloud
segment,
including
the
Azure
public
cloud,
Windows
Server,
Nuance
and
GitHub,
generated
$26.71
billion
in
revenue.
That’s
up
about
21%
and
more
than
the
$26.26
billion
consensus
among
analysts
surveyed
by
StreetAccount.

Revenue
from
Azure
and
other
cloud
services
grew
31%,
compared
with
30%
in
the
previous
quarter.
Analysts
polled
by
CNBC
had
expected
28.8%,
while
the
StreetAccount
consensus
was
28.6%.

Inside
of
the
Azure
growth,
7
percentage
points
were
related
to
AI,
up
from
6
points
of
impact
in
the
previous
quarter.
Microsoft
provides
cloud
services
for
the
ChatGPT
chatbot
from
startup
OpenAI,
and
companies
have
been
increasingly
adopting
Azure
AI
services
to
develop
their
own
capabilities
for
summarizing
information
and
writing
documents.

The
capacity
bottleneck
cut
into
the
AI
portion
of
Azure
growth,
Hood
said.

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

The
Productivity
and
Business
Processes
unit
containing
Office
productivity
software,
LinkedIn,
Dynamics
customer-relationship
management
software
generated
$19.57
billion
in
revenue,
up
around
12%.
The
StreetAccount
consensus
was
$19.54
billion.
This
marks
the
first
full
quarter
of
sales
of
the
Copilot
add-on
for
commercial
Microsoft
365
subscriptions. Copilot
draws
on
AI
models
from
OpenAI,
in
which
Microsoft
has
invested
billions.

Amgen
is
among
the
customers
that
have
signed
up
for
10,000
seats
for
the
Copilot,
Nadella
said.

Microsoft’s
More
Personal
Computing
revenue
totaled
$15.58
billion.
Revenue
from
the
segment,
which
includes
the
Windows
operating
system,
Surface
PCs,
video
games
and
search,
increased
approximately
18%
and
was
above
the
StreetAccount
consensus
of
$15.08
billion.
Revenue
from
Xbox
content
and
services
was
up
62%,
thanks
to
a
bump
from
the
$75
billion
acquisition
in
October
of
game
publisher
Activision
Blizzard,
including
its
popular
Call
of
Duty
titles.

Sales
of
Windows
licenses
to
device
makers
popped
11%.
Technology
industry
researcher
Gartner
estimated
that
PC
shipments
increased
0.9%
in
the
quarter.
Demand
for
PCs
was
“slightly
better
than
expected,”
Hood
said.

During
the
quarter,
Microsoft
introduced

Surface
PCs
with
a
key
for
quickly
accessing
the
Copilot
chatbot.
The
company
started
selling
access
to
the
Copilot
for

small
businesses
with
Microsoft
365
productivity
software
subscriptions
and
hired
Mustafa
Suleyman,
co-founder
of
artificial
intelligence
lab
DeepMind,
to
run
a
new
Microsoft
AI
group.
Suleyman
had
been
co-founder
and
CEO
of
startup
Inflection,
and
many
of
its
employees
also
joined
Microsoft.

“We
have
been
operating
with
speed
and
intensity
and
this
infusion
of
new
talent
will
enable
us
to
accelerate
our
pace
yet
again,”
Nadella
wrote
in

a
memo
about
the
Inflection
deal,
which
was

reportedly
worth
$650
million.

Excluding
the
after-hours
move,
Microsoft
stock
is
up
6%
this
year,
in
line
with
the
S&P
500
index.