AI

Microsoft beats expectations with its strong AI performance

Microsoft surpassed Wall Street expectations for fiscal first-quarter earnings across the board on Tuesday, with its cloud computing and PC divisions expanding as customers anticipate utilizing its artificial intelligence products.

Microsoft, which has significantly sponsored and cooperated with OpenAI, has yet to release the majority of the products based on its work with the author of ChatGPT. However, excitement among corporate technology purchasers for capabilities like as the capacity to summarize massive amounts of email into a few bullet points or quickly finish lines of computer code helped the company's sales climb 13% to US$56.5 billion in the fiscal quarter that ended September 30. According to LSEG statistics, this compares to analysts' average expectation of US$54.52 billion.

"The results indicated that artificial intelligence products are stimulating sales and are already contributing to top and bottom-line growth," said Jesse Cohen, senior analyst at Investing.com.

In after-hours trade, Microsoft shares rose 4.2%.

According to LSEG statistics, revenue from Microsoft's Intelligent Cloud segment, which houses its Azure cloud-computing platform, where much of the AI development will take place, increased to US$24.3 billion, compared to analysts' estimates of US$23.49 billion. Azure sales increased by 29%, above Visible Alpha's prediction of 26.2% growth.

According to Brett Iversen, Microsoft's vice president of investor relations, much of the quarterly revenue rise was due to customers renewing their use of Microsoft's cloud in anticipation of employing AI services.

"What AI is doing ... is opening up either new conversations or extending existing conversations or getting us back in touch with customers that we maybe weren't doing as much with," Iversen said in an interview with Reuters.

In comparison, Alphabet's cloud division failed third-quarter sales projections on Tuesday due to an uncertain economy and rising borrowing rates, prompting clients to cut their budgets.

"While a single quarter does not constitute a major trend," said Bob O'Donnell, principal analyst at TECHnalysis Research, "this quarter's cloud results from Microsoft and Google suggest that Azure is gaining share against its competition." "It could be that Microsoft's very strong messaging on their (AI) technology is getting companies to consider them in a more serious way."

According to LSEG statistics, Microsoft's fiscal first-quarter earnings were US$2.99 per share, above analyst projections of US$2.65 per share.

"There are some weaker areas; for example, search advertising revenues are growing slower than most segments," said Jeremy Goldman of Insider Intelligence.

Microsoft reported a 10% growth in search and news advertising income minus traffic acquisition expenditures. It does not separate the revenue for these businesses.

Microsoft is incorporating artificial intelligence into its products, such as the US$30-per-month "Copilot" for its Microsoft 365 service, which can summarize a day's worth of emails into a brief update. While the tool is only being presented to a small number of pilot clients until it becomes accessible next month, it does need several updates to Microsoft-based systems for firms to use Copilot.

Investors are also keeping a close eye on how much Microsoft spends on large data centres to support AI software. Microsoft announced on Tuesday that its fiscal first-quarter capital expenditures were US$11.2 billion, an increase over the previous quarter's US$10.7 billion, which was the highest spend since at least fiscal 2016. According to Microsoft officials, that sum is expected to rise each quarter this fiscal year, putting the business on course to spend more than US$44 billion.

According to LSEG statistics, sales of its Windows operating system and other goods in the division increased to US$13.7 billion, compared to analysts' average expectation of US$12.82 billion.

According to LSEG statistics, the sector encompassing the LinkedIn social network and its office productivity software increased to US$18.6 billion, compared to analysts' average forecast of US$18.20 billion.