Artificial Intelligence Contributes to Microsoft Cloud Revenue Increase to $26.7 Billion

Microsoft shares rose by up to 5% in after-hours trading on Thursday, following the company’s financial results announcement for the third quarter that exceeded analysts’ expectations on Wall Street.
Compared to the expected earnings per share of $2.82, the company achieved $2.94 per share, and revenues were $61.86 billion compared to the expected $60.80 billion. Microsoft’s total revenues increased by 17% on an annual basis for the quarter ending on March 31.
Net income reached $21.94 billion, or $2.94 per share, which was higher compared to the previous quarter’s $18.30 billion, or $2.45 per share in the same quarter of the previous year.
In terms of guidance, Amy Hood, Microsoft’s CFO, called for revenues of $64 billion in the fourth fiscal quarter, slightly below the expectations of analysts from the London Stock Exchange Group of $64.5 billion.
Hood’s expectations indicate an operating margin of 42.3%, surpassing “Street Account” expectations of 41.5%.
Hood pointed out that the future demand for artificial intelligence slightly exceeds the company’s current capacity.
Capital Expenditures
Microsoft continued to increase its capital investments to provide Nvidia’s graphic processing units for training and operating artificial intelligence models.
During the third fiscal quarter, Microsoft’s intelligent cloud sector generated revenues of $26.71 billion, including services such as Azure, Windows Server, Nuance, and GitHub.
This increase of approximately 21% was higher than the estimated $26.26 billion agreed upon by analysts.
Revenue from Azure and other cloud services increased by 31%, compared to the previous quarter’s 30% from previous expectations of 28.6%. Azure’s growth increased by 7 percentage points linked to artificial intelligence, compared to 6 points in the previous quarter.
Microsoft provides cloud services for the “GitHub Codespaces” chat application from “OpenAI,” and companies are increasingly relying on Azure services for artificial intelligence to enhance their capabilities in information summarization and document preparation.
CEO Satya Nadella stated during a conference call with analysts that Microsoft’s code authoring tool GitHub Copilot currently has 1.8 million paid subscribers.
The productivity and business operations unit, including office productivity software and LinkedIn, and Dynamics CRM software, generated revenues of $19.57 billion, with an increase of approximately 12%. Analyst estimates indicated $19.54 billion.
Copilot Sales
This first quarter accounts for a significant portion of total commercial Microsoft 365 subscriptions sales at Copilot.
Copilot utilizes artificial intelligence models from “OpenAI,” in which Microsoft has invested billions.
Microsoft’s revenues from the personal computing sector reached approximately $15.58 billion, with revenue growth from this sector, including the Windows operating system, Surface PCs, video games, and search, at approximately 18%; higher than analysts’ expectations of $15.08 billion.
Xbox content and services sales increased by 62%, due to Microsoft’s rise after acquiring game publisher “Activision Blizzard” for $75 billion in October, which includes the popular game “Call of Duty.”
Windows licensing sales to PC manufacturers increased by 11%. Gartner research expected a 0.9% increase in PC shipments during this quarter. Hood noted that the demand for PCs was slightly stronger than expected.
In a memo about the “Inflexion” deal, Nadella wrote that they have worked quickly and diligently, and this investment in new talents will help them re-accelerate their pace.
Except for after-hours trading, Microsoft’s stock has risen by 6% this year, in line with the “S&P 500” index.