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Microsoft beat expectations for revenue and cloud sales in an earnings report on Thursday, cheering investors who have been waiting for signs of a return on its investment in artificial intelligence.
Sales rose 17 percent to $61.9 billion in the three months ended March 31, compared with analyst expectations of $60.80 billion. Sales in Microsoft’s cloud division, the largest revenue driver, which also includes the Azure computing platform, also exceeded expectations.
Shares of the Seattle-based company, which have risen 7.6 percent this year and made it the world’s most valuable company by market capitalization, rose 4.5 percent in after-hours trading.
Microsoft has become a pioneer in the rapidly evolving generative AI industry, gaining an early lead thanks to its $13 billion investment in OpenAI, the company behind ChatGPT.
But after more than a year of excitement surrounding the technology, investors are clamoring for evidence that Big Tech companies can turn their huge investments in generative AI into paying customers and fat 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 the Copilot stack usher in a new era of AI transformation, driving better business outcomes across all roles and industries,” said Satya Nadella, chairman and CEO of Microsoft.
In January, Microsoft warned that its capital spending would increase “significantly” due to cloud and AI investments. Capital spending rose to $14 billion in the first three months of 2024, compared to $11.5 billion in the previous three months.
Shares of Facebook and Instagram parent company Meta plunged this week after the company warned that its capital spending would rise sharply this year and next as it increases its investment in AI.
Microsoft’s cloud revenue rose 21 percent to $26.7 billion in the quarter, compared with analyst forecasts of $26.2 billion – although the company forecast in January that revenue growth in the division would slow to would slow down into the high teens.
Azure revenue rose 31 percent excluding currency effects, while Microsoft forecast growth of 28 percent.
Microsoft said demand for its AI services boosted Azure revenue by 7 percentage points during the quarter, up from 6 in the previous quarter and 3 in the previous quarter.