Microsoft Q3 Results: Company basks in AI glory, revenue up 17% to $61.9 billion, Azure up 31%, beats analysts estimates

Chief Executive Officer Satya Nadella’s strategy of integrating AI technology from OpenAI into Microsoft’s entire product line is showing significant returns. This was evident by an uptick in customers utilizing AI tools for tasks like summarizing documents and generating content, along with subscriptions to Azure cloud services that feature OpenAI products, Bloomberg added.

“Microsoft’s generative AI-specific revenue has already become a key stock driver,” noted Dan Morgan, a senior portfolio manager at Synovus Trust Co. “Microsoft appears to be in an excellent position to thrive,”as quoted by Bloomberg.

Microsoft Azure revenue up by 31%

The company’s Azure platform reported a 31% revenue gain in the quarter, surpassing the anticipated 29%, signaling a slight improvement from the 30% growth observed in the previous period. About 7% of this increase was attributed to AI, an increase from 6% in the prior quarter, as per the report.

In an interview, Chief Financial Officer Amy Hood highlighted the widespread growth, “You’re seeing healthy growth really across Azure, in the non-AI and AI services, which is important. While of course, it’s still early in the long-term AI monetization opportunity, we feel good about where we are.” She also noted that over 65% of Fortune 500 companies are now using Azure OpenAI services, as per Bloomberg.

Microsoft’s commercial cloud product revenue increased by 23% to $35.1 billion. Commercial bookings, a metric indicating future revenue potential, grew by 29%, “quite a bit ahead of where we expected,” according to Hood, the report further added.

Looking forward, Microsoft projects Azure growth for the current quarter ending June 30 to range between 30% and 31%, which is above the 29% forecast by analysts surveyed by Bloomberg. For the fiscal year starting July 1, the company is projecting a sales and operating income growth of more than 10%.

Microsoft’s expansion plans

Microsoft is aggressively expanding its global data center network to support rising AI service demands, with capital expenditures reaching $14 billion during the quarter. Hood expressed on an analyst call that the company anticipates a “material” increase in capital spending from the $14 billion last quarter. She indicated that the initial demand for AI services is slightly ahead of the data center capacity available, necessitating further investments in infrastructure.

Security remains a strong focus for Microsoft, with the company recently introducing AI tools in its cybersecurity business to better summarize suspicious incidents and detect hackers’ obfuscation tactics. However, following a recent critical report from the US Cyber Safety Review Board, Microsoft has announced its most significant security overhaul in over two decades.

In addition to AI and cloud growth, Microsoft’s traditional desktop software business also benefited from a recovering PC market, with Windows revenue increasing by 11%. The gaming sector saw significant boosts from the acquisition of Activision Blizzard, leading to a 62% rise in Xbox content and services revenue, the report further added.

(With Inputs from Bloomberg)

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Published: 26 Apr 2024, 07:33 AM IST