Microsoft sees record third-quarter revenue thanks to AI

Microsoft reported strong quarterly results. The surge was driven by corporate demand for Microsoft's cloud and AI offerings, particularly Azure. Microsoft plans to ramp up Capex to keep capitalizing on the explosive growth.

Microsoft released its financial results for the third quarter of fiscal 2024 (July 2023 to June 2024). Its sales, operating income, and profit witnessed growth of double-digits year-on-year. Microsoft's revenue growth for the quarter was driven by Intelligent Cloud, composed of server products, and Azure, which grew by 24% and 31% year-on-year respectively.

Microsoft's CEO, Satya Nadella, highlighted the transformative impact of their AI offerings, saying that Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry. Microsoft CFO Amy Hood said that The results surpassed expectations, marking another quarter of double-digit growth in both revenue and profit. She said the company continued to gain market share across several of its business segments, adding that PC demand was slightly better than expected.

For the current quarter, Microsoft anticipates Productivity and Business Processes revenue to range from US$19.9 to US$20.2 billion, reflecting a 9-10% year-on-year increase. The Intelligent Cloud division is projected to see revenue between US$28.4 and US$28.7 billion, marking an 18-20% year-on-year growth. Meanwhile, the More Personal Computing segment is forecasted to generate US$15.2 to US$15.6 billion, with a 9-12% year-on-year growth.

Looking at the full fiscal year 2025, Microsoft expects both revenue and operating income to grow at a double-digit rate. The operating margin is predicted to decrease by about one percentage point.

In addition, the Capex for FY25 is anticipated to surpass that of the previous fiscal year. Including US$11 billion cash paid for property and equipment, Microsoft spent US$14 billion in Capex, up from US$11.5 billion in the preceding quarter, indicating its intention to expand the data center network to meet the rising demand for AI services.

Bloomberg quoted an Evercore ISI note saying that this was another robust quarter, thanks to the contribution from AI services. Gil Luria, a software analyst at D.A. Davidson, told WSJ that Microsoft is among the few companies that can monetize AI.

Source: Microsoft, April 2024

Source: Microsoft, April 2024

Source: Microsoft, April 2024