Microsoft Stock Soars After ChatGPT Investor Says AI Boosted Cloud Sales
In a remarkable turn of events, Microsoft witnessed a substantial boost in net income, surging by 27%, largely attributed to prudent cost management. The icing on the cake, however, was the accelerated growth in Azure cloud revenue, marking a striking recovery after two years of slower expansion. To top it all off, the company’s revenue forecast for the current quarter exceeded even the most optimistic expectations.
Satya Nadella, the Chief Executive Officer of Microsoft, made a grand entrance to the federal court in Washington, D.C., on October 2, 2023. The anticipation surrounding the tech giant’s performance was not in vain.
Following the announcement of fiscal first-quarter results and quarterly revenue guidance, Microsoft’s stock leaped as much as 6% in extended trading on Tuesday. This surge was fueled by results that outperformed Wall Street estimates, combined with a noteworthy increase in profits, mainly due to a decrease in the rate of operating expenses growth.
Here’s a comprehensive breakdown of Microsoft’s performance when compared to the consensus among analysts surveyed by LSEG (formerly known as Refinitiv):
Earnings per share: $2.99, surpassing the expected $2.65.
Revenue: $56.52 billion, outshining the expected $54.50 billion.
Looking forward, Amy Hood, Microsoft’s finance chief, expressed confidence during a conference call with analysts. She projected fiscal second-quarter revenue to fall within the range of $60.4 billion to $61.4 billion, indicating a remarkable 15% growth. This projection took analysts by surprise, as Refinitiv’s polls had initially estimated revenue at $60.9 billion.
Notably, revenue for the quarter grew by almost 13% year-over-year, leaping from $50.12 billion in the year-ago quarter. Net income followed suit, reaching an impressive $22.29 billion, marking a 27% increase from $17.56 billion, or $2.35 per share, in the same quarter a year ago.
Microsoft’s Intelligent Cloud segment stood out with an impressive $24.26 billion in revenue, demonstrating a significant 19% increase that exceeded the $23.49 billion consensus among analysts surveyed by StreetAccount. This segment encompasses various components, including the Azure public cloud, SQL Server, Windows Server, Visual Studio, Nuance, GitHub, and enterprise services.
Azure, in particular, enjoyed a remarkable revenue surge of 29% during the quarter, exceeding the 26% consensus among analysts polled by CNBC and StreetAccount. It’s worth noting that Microsoft doesn’t disclose Azure revenue in dollars. However, when considering constant currency, Azure’s revenue experienced a substantial 28% acceleration, up from 27% in the fiscal fourth quarter.
Looking ahead to the second half of the 2024 fiscal year, Hood projected that Azure’s growth at constant currency would remain stable, likely falling within the 26% to 27% range. Notably, artificial intelligence is expected to make an increasing contribution to this growth.
In the words of CEO Satya Nadella, Microsoft is committed to helping customers maximize the value of their digital investments through the Microsoft Cloud while achieving greater operating efficiency. Hood emphasized that clients are continuously finding ways to economize their cloud spending, a trend that has been echoed by various large cloud infrastructure providers in recent quarters.
Nadella anticipates that the second half of the fiscal year will see a return to more predictable cycles, after a period marked by significant fluctuations.
Concurrently, customers are flocking to new generative AI tools in the cloud, enriched with software from Microsoft-backed startup OpenAI. The Azure OpenAI Service has witnessed substantial growth, with 18,000 customers, up from 11,000 customers in July. Increased capacity for graphics processing units in Azure has contributed to this growth, as highlighted by Hood.
Hood also revealed that approximately 3 percentage points of the quarter’s Azure growth were attributed to AI. This is a noteworthy uptick compared to the company’s projection of 2 points of Azure growth in that area three months ago. Hood anticipates that the AI contribution in Azure at constant currency in the second half of the fiscal year will align with results in the fiscal second quarter.
The Productivity and Business Processes unit performed admirably, posting $18.59 billion in revenue, marking a 13% increase that exceeded StreetAccount’s $18.19 billion consensus. This unit encompasses Microsoft 365 productivity app subscriptions, LinkedIn, and Dynamics enterprise software. Notably, the Teams communication app boasted more than 320 million monthly active users, up from 300 million six months ago, as revealed by Nadella during a conference call with analysts.
However, Hood adopted a cautious tone when discussing the potential revenue boost from the introduction of the Microsoft 365 Copilot AI add-on for existing productivity software subscriptions. This add-on is set to become available to large companies on November 1, starting at $30 per person per month. Hood indicated that the company expects “related revenue to grow gradually over time.”
Lastly, Microsoft’s More Personal Computing segment, featuring Windows, Xbox, Bing, and Surface, reported $13.67 billion in revenue. This represents a 3% increase, surpassing the $12.85 billion StreetAccount consensus.
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