Microsoft Q3 Revenue Hits $61.9B, Cloud Sales Soar 31%

Key Takeaway

• Microsoft's Q3 revenue surged 17% to $61.9 billion, driven by strong demand for cloud services and AI, beating the $60.80 billion forecast.
• Azure's revenue jumped 31%, underscoring robust corporate adoption of Microsoft's AI tools within its cloud offerings.
• Microsoft invests heavily in AI and cloud, with capital expenditures rising to $11bn, reinforcing its leading position in generative AI technology.

Microsoft's Earnings Exceed Expectations

Microsoft Corp. reported a significant increase in its quarterly sales and profit, surpassing analyst expectations. The company's revenue for the third quarter, which ended on March 31, rose by 17% to $61.9 billion, against the anticipated $60.80 billion. This growth was primarily fueled by robust demand for Microsoft's cloud services and artificial intelligence (AI) offerings. Earnings per share reached $2.94, exceeding the average analyst estimates of $2.83 per share on sales of $60.9 billion. The company's shares saw a 6% rise in late trading, reflecting investor optimism.

AI and Cloud Services Propel Growth

Microsoft has been at the forefront of integrating AI technology across its product range, particularly through its partnership with OpenAI. This strategy is yielding positive outcomes, as evidenced by the increased adoption of AI tools in Microsoft's Office productivity software and Azure cloud subscriptions. Azure's revenue saw a 31% increase in the quarter, indicating strong corporate uptake of Microsoft's AI tools within its cloud services. Satya Nadella, Microsoft's CEO, highlighted the transformative impact of Microsoft Copilot and Copilot stack, stating they are "orchestrating a new era of AI transformation, driving better business outcomes across every role and industry."

Investment in AI and Cloud Infrastructure

Microsoft's commitment to AI and cloud computing is underscored by its significant investments in these areas. The company has become a key player in the generative AI industry, partly due to its $13bn investment in OpenAI. Capital expenditures, excluding finance leases, were $11bn in the first three months of 2024, up from $9.7bn in the previous quarter, reflecting the costs associated with cloud and AI investments. Despite these substantial investments, Microsoft's cloud division, including its Azure computing platform, continues to exceed expectations, with cloud revenues climbing 21% to $26.7bn during the quarter.

Market and Analyst Perspectives

The market's response to Microsoft's quarterly performance has been overwhelmingly positive, with shares rising about 6% in late trading. This investor confidence is buoyed by Microsoft's early lead in releasing generative AI products, which is expected to boost sales further. Dan Morgan, a senior portfolio manager at Synovus Trust Co., expressed a bullish outlook on Microsoft, stating, "Microsoft’s generative AI-specific revenue has already become a key stock driver... Microsoft is really in the driver’s seat when it comes to AI." This sentiment reflects the broader market optimism regarding Microsoft's strategic direction and its ability to capitalize on the growing demand for AI and cloud computing solutions.

Management Quotes

• Satya Nadella, Chair and Chief Executive of Microsoft:

  "Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry."