Microsoft cloud growth accelerates on back of AI push

Microsoft shares rose as much as 5% in extended trading on Thursday after the software maker issued fiscal third-quarter results that outdid Wall Street’s expectations. 

Here’s how the company did in comparison with the consensus from LSEG: 

• Earnings per share: $2.94 vs. $2.82 expected
• Revenue: $61.86 vs. $60.80 billion expected

Microsoft’s total revenue grew 17% year over year in the quarter, which ended on March 31, according to a statement. Net income, at $21.94 billion, or $2.94 per share, was up from $18.30 billion, or $2.45 per share in the year-ago quarter.

The company’s Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance and GitHub, produced $26.71 billion in revenue. That’s up about 21% and more than the $26.26 billion consensus among analysts surveyed by StreetAccount.

Revenue from Azure and other cloud services grew 31%, compared with 30% in the previous quarter. Analysts polled by CNBC had expected 28.8%, while the StreetAccount consensus was 28.6%.

Inside of the Azure growth, 7 percentage points were related to artificial intelligence, up from 6 points of impact in the previous quarter. Microsoft provides cloud services for the ChatGPT chatbot from startup OpenAI, and companies have been increasingly adopting Azure AI services to develop their own capabilities for summarizing information and writing documents.

The Productivity and Business Processes unit containing Office productivity software, LinkedIn, Dynamics customer-relationship management software generated $19.57 billion in revenue, up around 12%. The StreetAccount consensus was $19.54 billion. This marks the first full quarter of sales of the Copilot add-on for commercial Microsoft 365 subscriptions. The Copilot draws on AI models from OpenAI, in which Microsoft has invested billions.

Microsoft’s More Personal Computing revenue totaled $15.58 billion. Revenue from the segment, which includes the Windows operating system, Surface PCs, video games and search, went up approximately 18% and was above the StreetAccount consensus of $15.08 billion. Revenue from Xbox content and services was up 62%, thanks to a bump from the $75 billion acquisition in October of game publisher Activision Blizzard.

Sales of Windows licenses to device makers were up 11%. Technology industry researcher Gartner had estimated that PC shipments increased 0.9% in the quarter.

During the quarter, Microsoft introduced Surface PCs with a key for quickly accessing the Copilot chatbot. The company started selling access to the Copilot for small businesses with Microsoft 365 productivity software subscriptions and hired Mustafa Suleyman, co-founder of artificial intelligence lab DeepMind, to run a new Microsoft AI group. Suleyman had been co-founder and CEO of startup Inflection, and many of its employees also joined Microsoft.

“We have been operating with speed and intensity and this infusion of new talent will enable us to accelerate our pace yet again,” CEO Satya Nadella wrote in a memo about the Inflection deal, which was reportedly worth $650 million.

This marks the first full quarter for sales of the Copilot add-on for commercial Microsoft 365 customers. In a note on Sunday, analysts at Piper Sandler warned clients not to expect many financial details from Microsoft.

Excluding the after-hours move, Microsoft stock is up 6% so far this year, in line with the S&P 500 index.

Executives will go over the results and issue guidance on a conference call with analysts starting at 5:30 p.m. ET.

This story is developing. Please check back for updates.