4/26/2024

Microsoft benefits from AI investments

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Key points:

  • Microsoft beat analysts’ expectations for revenue and profit. Revenue rose 17%, earnings per share were $2.94.
  • Microsoft shares rose more than 4% after the report.
  • The company is investing in generative AI (genAI) tools through a partnership with OpenAI.

Microsoft reported third-quarter results Thursday, beating analysts’ expectations for revenue and profit. The growth is due to the successful implementation of artificial intelligence technologies in the company’s cloud services. Microsoft shares jumped more than 4% in after-hours trading.

The company’s management provided guidance for cloud services revenue for the current quarter, which generally exceeded Wall Street’s targets.

Report data

Microsoft delivered impressive financial results in the first quarter of 2023, beating analysts’ expectations for both revenue and profit. The company’s revenue rose 17% to $61.9 billion, beating the consensus estimate of $60.80 billion. Earnings per share were $2.94, also beating Wall Street’s target of $2.82.

These results are largely due to the successful implementation of artificial intelligence technologies in Microsoft cloud services. Increasing investments in this area, as practice has shown, justifies itself, stimulating growth and strengthening the company’s position in the market.

The growth of Microsoft shares against the backdrop of the publication of financial statements led to a significant increase in the company’s market capitalization, reaching $128 billion. Despite the increase in Microsoft’s capital expenditures on AI, which in the third quarter turned out to be $1 billion higher than analysts’ forecasts ($14 billion versus $13.14 billion), investors are optimistic about the company’s prospects.

What products does Microsoft implement AI technologies into?

Microsoft shares have seen significant gains this year, driven in large part by the success of its generative artificial intelligence (genAI) tools developed through a strategic partnership with OpenAI.

Access to OpenAI’s cutting-edge technologies has provided Microsoft with a significant competitive advantage, allowing the company to integrate genAI into its core products such as Azure, Bing and Microsoft 365 (Word, Excel, PowerPoint). These innovations not only boosted the company’s stock, but also allowed it to take the crown of the world’s most valuable company from Apple.

Apart from genAI, Microsoft’s success in cloud computing is also playing a major role in its growth. Thus, the revenue of the Microsoft Intelligent Cloud division, which includes the Azure cloud computing platform, grew to $26.7 billion, exceeding analysts’ forecasts of $26.24 billion.

The company forecast continued growth in revenue from intelligent cloud services in the fourth quarter, predicting a figure of $28.4 billion to $28.7 billion, above Wall Street’s target of $28.47 billion.

Azure, Microsoft’s flagship cloud computing product, performed particularly impressively, with revenue growth of 31%, beating Visible Alpha’s forecast of 29%. Microsoft forecast fourth-quarter Azure growth of 30% to 31%, also above Wall Street’s target of 28.5%.

It’s worth noting that Microsoft doesn’t disclose exact revenue figures for Azure, but that segment of the company’s business is expected to benefit most from the growing interest in artificial intelligence.

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