Microsoft’s cloud sales receive a boost from AI

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Microsoft beat expectations for revenue and cloud sales on Thursday in an earnings report that cheered investors who have been looking for signs of a pay-off from its investment in artificial intelligence.

Revenue climbed 17 per cent to $61.9bn in the three months to March 31, compared with analyst expectations for $60.80bn. Sales in Microsoft’s cloud division, its biggest revenue driver that includes its Azure computing platform, also beat expectations.

Shares in the Seattle-based company — which have risen 7.6 per cent this year to make it the world’s most valuable company by market capitalisation — were up 4.5 per cent in after-hours trading.

Microsoft has become a bellwether for the rapidly developing generative AI industry, having secured an early lead thanks to its $13bn investment in OpenAI, the company behind ChatGPT. 

But after more than a year of excitement about the technology, investors are clamouring for evidence that Big Tech companies can convert their huge investments in generative AI into paying customers and healthy profits. 

One product being closely watched is Microsoft’s Copilot generative AI assistant, which has been integrated into its suite of productivity apps. 

“Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” said Satya Nadella, Microsoft chair and chief executive.

In January, Microsoft cautioned that its capital expenditures would grow “materially” as a result of cloud and AI investments. Capex rose to $14bn in the first three months of 2024, compared with $11.5bn in the previous three months.

Shares in Facebook and Instagram parent Meta plunged this week after the company warned its capex would balloon this year and next as it increases its investment in AI.

Microsoft’s cloud revenues climbed 21 per cent during the quarter to $26.7bn, compared with analysts’ forecasts for $26.2bn — despite the company’s guidance in January that sales growth in the division would decelerate to the high teens.

Revenue at Azure rose by 31 per cent, stripping out the effect of currency movements, compared with Microsoft’s guidance for growth of 28 per cent.

Microsoft said demand for its AI services had boosted Azure revenues by 7 percentage points during the quarter, up from 6 in the previous quarter and 3 in the one before that.

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