Finance
Microsoft beats both the top and bottom lines of the third quarter in cloud strength
Microsoft (MSFT) reported its fiscal third-quarter results on Thursday, beating analyst expectations on the top and bottom lines, thanks to the strength of its cloud computing business.
“Microsoft Copilot and Copilot Stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” said Satya Nadella, CEO of Microsoft, in a statement.
Microsoft said its AI services contributed 7 percentage points of growth in revenue from Azure and other cloud services. That is an increase compared to 6 percentage points in the second quarter and 3 points in the first quarter. Microsoft first announced its AI percentage contributions to Azure in the fourth quarter last year, saying at the time that it had added 1 percentage point to Azure revenue.
The company also said it expects fourth-quarter revenue of between $63.5 billion and $64.5 billion, ahead of analyst expectations of $64.7 billion.
Microsoft CFO Amy Hood said during the company’s earnings call that the tech giant sees demand for AI exceeding available capacity in the near term.
Shares of Microsoft rose 5% after the announcement.
Microsoft reported earnings per share (EPS) of $2.94 on revenue of $61.9 billion. According to analyst estimates from Bloomberg, Wall Street expected earnings per share of $2.83 on revenue of $60.88 billion.
Microsoft’s total commercial cloud revenue came in at $35.1 billion, ahead of Wall Street estimates of $33.93 billion. On a segment basis, Microsoft saw Productivity and Business Process revenues of $19.57 billion, exceeding expectations of $19.54 billion. Intelligent Cloud and More Personal Computing revenues were $26.71 billion and $15.58 billion, respectively. That was better than the $26.25 billion and $15.07 billion respectively that analysts had expected.
More Personal Computing’s revenue decline was driven by 11% growth in Windows OEM sales to PC manufacturers and 62% growth in Xbox content and services sales, with 61% attributable to net impact of Microsoft’s acquisition of Activision Blizzard.
Shares of Microsoft are up more than 10% year to date, behind rivals like Google parent Alphabet (GOOG, GOOGL) and Amazon (AMZN), which are up 15% and 22%, respectively. Over the past twelve months, Microsoft shares are up 32%, while Amazon is up 67%, while Google is up 47%.
The three companies are competing to see who can provide the most comprehensive AI solutions to enterprise clients and customers, whether that means making heavy investments in external companies like OpenAI and Anthropic or reorganizing their internal teams like Google.
Microsoft’s AI ambitions got a healthy boost on Tuesday when it announced that Coca-Cola (KO) signed a five-year, $1.1 billion deal to use the software giant’s Azure cloud services and AI technology.
“Through our long-standing partnership, we have made significant progress in accelerating system-wide AI transformation across The Coca-Cola Company and its network of independent bottlers worldwide,” said Judson Althoff, Microsoft Executive Vice President and Chief Commercial Officer, in a statement declaration.
Microsoft has unleashed a flood of new AI features and services for its business, productivity apps, and consumer platforms since it first debuted its revamped version of Bing and its AI chatbot in February 2023.
In March, Microsoft announced that it has hired Mustafa Suleyman, co-founder of DeepMind AI and Inflection AI, Karén Simonyan, co-founder of Inflection AI, as well as a number of company staff. Suleyman will take on a new position at Microsoft as CEO of the Microsoft AI division.
In February, Microsoft announced a multi-year partnership with French AI startup Mistral, which would allow Microsoft to offer the company’s models on its Azure platform.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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