Microsoft beats earnings estimates on AI push and cloud adoption

Company’s net income jumped 20% on a yearly basis to almost $22bn

Microsoft is investing heavily in building its AI capabilities. AP

Microsoft on Thursday exceeded analysts’ estimates for third-quarter revenue and profits, driven by an artificial intelligence push and increased adoption of cloud solutions globally.

The company’s net income jumped 20 per cent on a yearly basis to $21.9 billion. Its earnings per share increased 20 per cent to $2.94, exceeding the expectation of $2.82.

Revenue during the January-March period surged 17 per cent to $61.9 billion, passing analysts’ estimate of $60.8 billion.

Microsoft’s financial year ends in June.

“Microsoft [AI assistant] Copilot and Copilot Stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” said Satya Nadella, chairman and chief executive of Microsoft.

Launched in March last year, Microsoft 365 Copilot combined the power of large language models and generative AI with the company’s apps and platforms.

The company has released several updates to the tool.

The company, based in Redmond, Washington, is investing heavily in building its AI capabilities.

This month it announced an investment of $1.5 billion in Abu Dhabi’s AI and cloud company G42 to boost its global expansion plans and strengthen the UAE's position as a world technology centre.

In January, it announced the addition of a new Copilot key on the Windows keyboard to support the adoption of AI in its hardware products.

The company's stock, which has gained almost 8 per cent since the start of this year, surged more than 4.4 per cent to $416.6 a share in after-hours trading on Thursday.

Its share price was $399 at market close, giving Microsoft a value of $2.97 trillion.

Revenue in Microsoft’s intelligent cloud division, which includes Azure public cloud, increased 21 per cent annually to $26.7 billion, higher than the $26.2 billion consensus of analysts surveyed by StreetAccount.

Sales from Azure and other cloud services, which Microsoft does not report in dollars, grew by about 31 per cent.

Since 2016, Microsoft has committed to building Azure into an AI supercomputer for the world, as the foundation of its vision to democratise artificial intelligence.

“While several tech companies failed to keep on growing at the same pace as they did in the past quarters due to the widespread margin shrinkage both on the costs and revenue sides, Microsoft's AI and cloud growth numbers show that the company managed to sail through the quarter unfazed,” Thomas Monteiro, senior analyst at Investing.com, told The National.

“This shows that companies worldwide are increasingly betting their futures on AI and big data … and are doing so by using Microsoft's comprehensive and best-in-breed offerings.”

Microsoft's productivity and business processes division, which includes its Microsoft Office business and revenue from LinkedIn, surged 12 per cent to $19.6 billion in the March quarter.

LinkedIn revenue increased almost 10 per cent annually. Microsoft did not give a dollar figure for its LinkedIn revenue and did not disclose the number of users.

Subscribers to Microsoft 365 Consumer – a bundle of various apps – increased to 80.8 million at the end of the past quarter, up over 3 per cent on a quarterly basis, the company said.

Sales in the personal computing division surged 17 per cent to $15.6 billion in the quarter.

Search and news advertising revenue excluding traffic acquisition costs increased 12 per cent, while devices revenue decreased 17 per cent.

Xbox content and services revenue increased 62 per cent in the third quarter.