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Microsoft Surpasses Wall Street Expectations Thanks To Its Investment In AI

Microsoft Surpasses Wall Street Expectations Thanks To Its Investment In AI
Microsoft's shares increased more than 4% in extended trading on Thursday after the firm exceeded Wall Street projections for third-quarter sales and profit. The business attributed its success to the use of artificial intelligence across all of its cloud services.
For the current quarter, executives projected cloud revenue ranges that were largely higher than Wall Street expectations.
Microsoft's stock market value increased by $128 billion following the bell, with revenue and earnings growth outpacing the company's higher-than-expected capital expenditures. On the other hand, after warning of escalating AI costs and releasing a lower-than-expected revenue estimate on Wednesday, Meta, the parent company of Facebook and Instagram, saw a $200 billion decline in its market capitalization.
According to Jeremy Goldman, senior director of briefings at Emarketer, "Microsoft's AI-powered earnings demonstrate that doubling down on innovation is paying off." Goldman cited the company's early actions in generative AI, such as its sizable investment in ChatGPT developer OpenAI.
LSEG data show that Microsoft's sales for the quarter ending in March increased by 17% to $61.9 billion, beating the average forecast of $60.80 billion. Wall Street had projected $2.82 for earnings per share, but $2.94 was higher.
Simultaneously, Microsoft exceeded analysts' expectations by about $1 billion in third-quarter capital spending driven by AI. According to Visible Alpha, capital expenditures increased from $11.5 billion to $14 billion in the prior quarter, surpassing predictions of $13.14 billion.
"We're continuing to see customer demand grow quite a bit," Brett Iversen, Microsoft's vice president of investor relations told Reuters. "And so we're making sure to scale our available capacity in line with that."
As a result of Microsoft releasing generative AI (genAI) tools based on its strategic alliance with OpenAI, the stock has surged and it has also helped the business overtake Apple as the most valuable corporation in the world this year. Microsoft has exclusive access to the highly sought-after AI technology from OpenAI, which it has been attempting to integrate into a variety of its products, including Microsoft 365, Azure, Bing, and Word, Excel, and PowerPoint.
The Azure cloud computing platform is housed within Microsoft's Intelligent Cloud unit. According to LSEG data, revenue from this unit increased to $26.7 billion, surpassing the average expectation of $26.24 billion.
It predicted intelligent cloud revenue for the fourth quarter of $28.4–28.7 billion, largely exceeding Wall Street projections of $28.47 billion.
Compared to a 29% growth prediction from market research firm Visible Alpha, Azure sales increased by 31%. Microsoft said that Azure growth in the fourth quarter of its fiscal year will be between 30% and 31%, above the Wall Street goal of 28.5%.
Microsoft doesn't disclose the exact revenue amount for Azure, the division of its company most positioned to benefit from the growing interest in artificial intelligence.
Microsoft's enterprise software and Windows businesses have benefited from the Copilot product, a suite of genAI assistants that was introduced in November and costs $30 per month. Another element was a rebound in sales of personal computers, opens new tab.
LSEG data shows that the More Personal Computing unit revenue climbed 17% to $15.6 billion, exceeding analyst estimates of $15.08 billion.
Productivity and Business Processes, a division of Microsoft that includes LinkedIn and office software, saw a 12% rise in revenue to $19.6 billion. An analyst's estimate was $19.54 billion, based on LSEG data.

Christopher J. Mitchell

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