Microsoft’s Strong Earnings Boost Shares: AI Demand Outpaces Capacity, Azure Revenue Soars

Microsoft’s shares surged by as much as 5% during after-hours trading on Thursday following the release of its fiscal third quarter results, which exceeded Wall Street expectations. The software giant reported a total revenue growth of 17% year over year for the period ending March 31st. Microsoft’s net income reached $21.94 billion or $2.94 per share in comparison to the prior-year figures at $18.30bn and $2.45 respectively. The company forecasted a revenue of $64bn for its fiscal fourth quarter, below the consensus from LSEG but with an operating margin ahead of StreetAccount’s projection by 0.9%. Microsoft stated that demand for near-term AI was higher than their available capacity and has been increasing capital expenditures to secure Nvidia graphics processing units required in training and running artificial intelligence models. The Intelligent Cloud segment, including Azure public cloud, Windows Server, Nuance and GitHub contributed $26.71bn revenue for the quarter, up by approximately 21% against analysts’ consensus of $26.26bn. Revenue from Azure grew at a rate of 31%, with AI contributing to seven percentage points in comparison to six recorded during Q2 FY2022. The Productivity and Business Processes unit that includes Office productivity software, LinkedIn, Dynamics customer-relationship management software generated $19.57bn revenue for the quarter against StreetAccount’s consensus of $19.54bn, marking its first full quarter since Copilot was launched as an add-on to commercial Microsoft 365 subscriptions in December last year. The More Personal Computing segment that includes Windows operating system, Surface PCs, video games and search generated a revenue increase of approximately 18% against StreetAccount’s consensus at $15.08bn due to the acquisition of game publisher Activision Blizzard for $75 billion in October last year which resulted in an Xbox content and services sales rise by 62%. Microsoft introduced Surface PCs with a key that enables quick access to Copilot, started selling it as part of small business subscriptions on Microsoft 365 productivity software and hired Mustafa Suleyman from startup Inflection for $650m. The tech industry researcher Gartner estimated an increase in the number of PC shipments by 0.9% during Q2 FY2022, which Microsoft stated was slightly better than anticipated.