Microsoft beats analyst estimates on AI-driven cloud demand

Demand continues to be higher than company's available capacity, says Microsoft finance chief Amy Hood

Microsoft has committed to building Azure into an AI supercomputer for the world. Bloomberg

Microsoft reported better-than-expected earnings for its fiscal 2025 first quarter, as artificial intelligence-driven global demand bolstered its Azure cloud business.

The company’s net income in the July-September period surged 11 per cent year on year to $24.7 billion, while its earnings per share increased 10 per cent annually to $3.30, compared with analysts' estimates of $3.10, according to LSEG data.

Revenue during the quarter jumped 16 per cent yearly to $65.6 billion, passing analysts’ estimates of $64.5 billion.

Microsoft's earnings help to cement the broad perception that AI and cloud growth should keep driving the market forward with more positive reports in the coming months, said Thomas Monteiro, senior analyst at Investing.com.

“A good part of the gains can be attributed to an improving business environment.hese numbers also show that monetisation across its vast suite of AI offerings is only at the start – even despite the already behemoth-sized revenue,” Mr Monteiro told The National.

Revenue in Microsoft’s intelligent cloud division, which includes Azure public cloud, increased 20 per cent annually to $24.1 billion in the three months ending September 30, higher than the $24 billion consensus of analysts surveyed by StreetAccount.

“Demand continues to be higher than our available capacity,” Amy Hood, Microsoft’s chief financial officer, said during a conference call with analysts.

Sales from Azure and other cloud services, which Microsoft does not report in dollars, grew by about 33 per cent in the previous quarter.

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

“AI-driven transformation is changing work, work artefacts, and workflow across every role, function and business process,” said Satya Nadella, chairman and chief executive of Microsoft.

“We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage.”

Microsoft's investments in AI remain a key area of interest for investors, as the company expands its infrastructure and boosts chip spending to support heavier workloads. The company is also one of the main backers of ChatGPT’s parent firm OpenAI, which was recently valued at $157 billion.

After the earnings announcement, Microsoft’s stock was trading 4.61 per cent down at $412.6 a share in after-market trading.

Earlier, it closed 0.13 per cent up at $432.53, giving the company a market cap of more than $3.2 trillion.

The company's productivity and business processes division, which includes its Microsoft Office business and revenue from LinkedIn, surged 12 per cent to $28.3 billion in the September 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.

Sales in the personal computing division surged 17 per cent to $13.2 billion in the quarter.

Search and news advertising revenue excluding traffic acquisition costs increased 18 per cent, while Windows OEM (original equipment manufacturer) and devices revenue increased 2 per cent.

Microsoft also returned $9 billion to shareholders in the form of share repurchases and dividends in the last quarter.

The company spent more than $7.5 billion on research and development, about 11.5 per cent of its total sales in the quarter.