Microsoft earnings show AI is bolstering demand for cloud services
- Revenue for the tech giant’s Azure cloud business beat analysts’ expectations.
Microsoft reported strong quarterly growth in its cloud-computing business that indicated its heavy investment in artificial intelligence is paying off.
Revenue for the tech giant’s Azure cloud business—a core of its AI offering—rose 33% in the quarter through September, beating analysts’ expectations.
The Redmond, Wash., company’s overall revenue rose 16% to $65.6 billion as its net income climbed 11% to $24.7 billion. Analysts were expecting revenue of $64.57 billion and net income of $23.15 billion.
Excitement about the potential for generative AI that can create computer code and summarize complex information has helped fuel a run-up in the shares of Microsoft and other tech companies since 2023.
Alphabet shares rose Wednesday after the Google parent announced strong results on Tuesday in its cloud-computing division, another beneficiary of the AI boom.
Microsoft, and the tech industry more broadly, remains in the midst of a major spending spree on its AI, building data centers to power it around the world.
CEO Satya Nadella has bet Microsoft’s future on AI. The company has invested around $14 billion into ChatGPT maker OpenAI and is pouring cash into the expensive chips and data centers needed for the technology.
The company has said it plans to match its spending growth to perceived demand. It has slashed costs in other areas, such as hardware, to avoid taking a large hit on profit margins.
Most of Microsoft’s AI revenue has come through its cloud services. The company has added the technology to its bestselling software such as Microsoft 365 and its Bing search engine.
Microsoft’s revenue from its AI software products is small. It hasn’t been breaking out sales from Copilot, the AI assistant it markets to customers and costs $30 per person. While it is still a relatively new product—it was only released widely last year—investors are hoping that the company starts to share more details about demand.
“There’s been a little disappointment around Office Copilot relative to the promise and price," said Rishi Jaluria, an analyst with RBC Capital. “The product isn’t necessarily there."
Through the close of regular trading on Wednesday, Microsoft shares had risen less than 15% so far this year. The tech-heavy Nasdaq Composite Index rose more than 20% over the same period.
Write to Tom Dotan at tom.dotan@wsj.com
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