Microsoft Results Top Wall Street Targets, Driven by AI Investment

  • SaySay
  • Ai
  • June 16, 2024
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Microsoft exceeded Wall Street expectations for third-quarter revenue and profit on Thursday, driven by robust adoption of artificial intelligence (AI) across its cloud services, leading to a more than 4% jump in its shares during extended trading.

Executives provided forecasts for current quarter cloud revenue that generally surpassed Wall Street’s targets.

Following the surge in Microsoft’s share price after hours, the company’s market capitalization increased by $128 billion, supported by strong profit and revenue growth despite higher-than-expected capital expenditures. In contrast, Meta, the parent company of Facebook and Instagram, saw its market value decline by $200 billion on Wednesday due to increased AI expenses and a lower-than-expected revenue forecast.

“Microsoft’s success with AI-driven earnings underscores the payoff of its intensified focus on innovation,” said Jeremy Goldman, senior director of briefings at Emarketer, highlighting Microsoft’s early strides in generative AI, including its significant investment in OpenAI, the developer of ChatGPT.

Microsoft reported a 17% increase in revenue to $61.9 billion for the quarter ending in March, surpassing the consensus estimate of $60.80 billion from LSEG data. Earnings per share reached $2.94, exceeding Wall Street’s target of $2.82.

However, Microsoft’s AI-driven capital expenditures in the third quarter were nearly $1 billion higher than analysts’ expectations. Capital expenditures rose from $11.5 billion in the previous quarter to $14 billion, surpassing estimates of $13.14 billion, according to Visible Alpha.

“We continue to witness significant growth in customer demand,” said Brett Iversen, Microsoft’s vice president of investor relations, in an interview with Reuters. “Therefore, we are scaling our available capacity accordingly.”

Microsoft’s stock has surged as it rolls out generative AI (genAI) tools developed through its strategic partnership with OpenAI, helping it surpass Apple to become the world’s most valuable company this year. Microsoft has exclusive access to OpenAI’s coveted AI technologies, integrating them across its product portfolio, including Azure, Bing, and Microsoft 365, which includes Word, Excel, and PowerPoint.

Revenue from Microsoft’s Intelligent Cloud unit, which includes the Azure cloud computing platform, climbed to $26.7 billion, surpassing the average estimate of $26.24 billion from LSEG data.

For the fourth quarter, Microsoft forecasts intelligent cloud revenue of $28.4-28.7 billion, mostly ahead of Wall Street’s target of $28.47 billion.

Azure revenue increased by 31%, exceeding the 29% growth estimate from market research firm Visible Alpha. Microsoft expects Azure growth in the fiscal fourth quarter to range between 30% and 31%, surpassing the 28.5% Wall Street target.

While Microsoft does not disclose the absolute revenue figure for Azure, it remains a pivotal part of its business strategy to capitalize on the surging interest in artificial intelligence.

The launch of the Copilot tool, a suite of genAI assistants introduced in November priced at $30 per month, has bolstered Microsoft’s enterprise software and Windows businesses, aided by a recovery in personal computer sales.

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