Microsoft’s Quarterly Cloud Sales, Profit Exceed Expectations

Microsoft Corp. said it will spend more than $30 billion in the current quarter to build out the data centers powering its artificial intelligence services.

Investors, applauding accelerating growth in the company’s cloud-computing unit, sent the shares up sharply.

The closely watched Azure division posted a 39% rise in sales during Microsoft’s fiscal fourth quarter, the company said in a statement on Wednesday. Analysts projected a 34% increase. The company’s forecast for growth in the current quarter also exceeded analyst estimates.

Microsoft said sales at the cloud division grew 34% to more than $75 billion during the year ended June 30, the first time the company has disclosed a revenue figure for Azure, which sells computing power and other services to businesses.

The results suggest that Microsoft, perhaps the most prodigious spender of the AI age, is starting to see a return in the form of rising sales.

The shares rose around 8.5% in premarket trading on Thursday after closing at $513.24 in New York, gains that if they hold would give the company a market capitalization of more than $4 trillion. The stock was up about 22% this year through the Wednesday close.

On a call with analysts, Microsoft Chief Executive Satya Nadella said Copilot, the chatbot the company markets to individuals, businesses and coders, has more than 100 million monthly active users. Some 800 million customers interact with the AI features scattered through Microsoft’s products, Nadella said.

“Microsoft 365 Copilot is becoming the new way to organize work,” he said, referring to the company’s main business-focused chatbot.

Last week, Alphabet Inc.’s Google, which boasts billions of users of its Android smartphone software, said its Gemini AI assistant app had more than 450 million monthly active users. OpenAI’s ChatGPT has 500 million weekly active users, the company said in March.

Even as Microsoft made new disclosures about its AI business, the company abandoned its recent practice of detailing what portion of Azure’s growth was attributable to AI demand. Jonathan Neilson, a vice president of investor relations, said in an interview that such figures have become less relevant as use of AI-specific services like rentals of high-end graphics processing units increasingly spur customers to ramp up their use of other products like data storage or analytics.

Greg Halter, director of research at Carnegie Investment Counsel, and Bloomberg Intelligence's Anurag Rana react to the earnings.

Microsoft in the last few years has deployed AI tools, including those powered by OpenAI, across its products, betting that conversant chatbots and more powerful automation technology will boost sales of the company’s productivity software and cloud services.

That’s come at a steep cost, as Microsoft races to construct enough data centers to meet surging demand for generative AI training and tools.

The Redmond, Washington-based company’s capital expenditures during the recently completed quarter, $24.2 billion, were a record. It won’t stand for long. Chief Financial Officer Amy Hood said the company would spend upwards of $30 billion in the current quarter, which would be at least 50% more than the outlay during the same period a year earlier.

“We will continue to invest against the expansive opportunity ahead,” Hood said.

The quarter’s strong growth in Azure “could quell lingering investor concern over the company’s elevated capital spending,” Bloomberg Intelligence analysts Anurag Rana and Andrew Girard wrote in a note. “We expect this to give Microsoft greater justification to invest more in its AI business, with spending likely skewed heavier toward shorter-term assets like servers and GPUs.”

The company’s largest rivals in cloud services, Amazon.com Inc. and Alphabet have also announced massive expansion plans.

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