Microsoft sales, profit beat expectations on AI demand (2024)

Revenue rose 17% to US$61.9 billion

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Microsoft sales, profit beat expectations on AI demand (1)

Bloomberg News

Dina Bass and Jackie Davalos

Published Apr 25, 20243 minute read

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Microsoft Corp.’s quarterly sales and profit climbed more than projected, lifted by corporate demand for the software maker’s cloud and artificial intelligence offerings.

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Revenue in the third quarter, which ended March 31, rose 17 per cent to US$61.9 billion, while profit was US$2.94 a share, the company said in a statement Thursday. Analysts on average estimated per-share earnings of US$2.83 on sales of US$60.9 billion.

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Chief executive Satya Nadella has been infusing Microsoft’s entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarize documents and generate new content to their Office productivity software or signing up for Azure cloud subscriptions with OpenAI products.

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“Microsoft’s generative AI-specific revenue has already become a key stock driver,” said Dan Morgan, a senior portfolio manager at Synovus Trust Co. “Microsoft appears to be in an excellent position to thrive. Microsoft is really in the driver’s seat when it comes to AI.”

Azure revenue gained 31 per ent in the quarter, above an average prediction of 29 per cent and picking up slightly from the 30 per cent growth in the previous period. About seven per cent of that increase was attributable to AI, compared with six per cent in the previous quarter.

Commercial cloud product revenue rose 23 per cent to US$35.1 billion, Microsoft said.

The shares rose about five per cent in late trading. They had closed at US$399.04 in New York. The stock climbed 12 per cent in the March quarter on optimism that the company’s early lead in releasing generative AI products would boost sales.

Microsoft sales, profit beat expectations on AI demand (24)

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The company has leveraged its US$13 billion investment in research pioneer OpenAI to create a series of AI assistants and other features for products ranging from Windows to Office, security software to search engine Bing, many of which carry additional fees for customers to use.

On Nov. 1, the software company widely released the corporate version of its Microsoft 365 Copilot — an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams — to large customers. The new tools cost companies an extra US$30 a month on top of existing subscriptions, and could one day become a meaningful source of recurrent revenue. This year, Microsoft expanded access to smaller firms and debuted a US$20 consumer version of the AI assistant.

Microsoft is seeking to push AI outside the corporate market as well. Nadella last month hired Google DeepMind co-founder Mustafa Suleyman to oversee the company’s consumer AI operation, a move reflecting the CEO’s dissatisfaction with the company’s efforts to create and deploy AI products for home users, Bloomberg reported earlier.

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The Redmond, Washington-based company is also baking AI into its fast-growing cybersecurity business. The company recently released tools that can generate summaries of suspicious incidents and ferret out methods hackers use to obscure their intentions. The cybersecurity operation, the world’s largest, is showing “relative strength,” according to a Bank of America Securities note.

Yet earlier this month, the U.S. Cyber Safety Review Board issued a scathing report documenting the company’s inability to stop hackers from pilfering the email boxes of U.S. officials. The company has announced its biggest security overhaul in more than two decades, but it’s unclear whether the effort will adequately address the challenges — or mollify critics.

Bloomberg.com

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