Microsoft beats Wall Street expectations with $81.3B revenue

Microsoft Reports Strong Quarter with 17% Revenue Growth, Driven by AI Expansion

Microsoft announced Wednesday that its revenue reached $81.3 billion in the October-December quarter, marking a 17% increase compared to the same period last year as the tech giant continues its push to expand adoption of artificial intelligence tools globally.

The Redmond, Washington-based company reported a quarterly net profit of $30.9 billion, or $4.14 per share, exceeding Wall Street expectations. Analysts surveyed by FactSet Research had projected earnings of $3.91 per share on revenue of $80.31 billion for the quarter.

When excluding the impact of its investments in OpenAI, the company behind ChatGPT, Microsoft’s profit was even higher at $38.5 billion, or $5.16 per share. The company indicated this reflects a new accounting practice it plans to use moving forward.

Microsoft’s significant stake in OpenAI comes after the AI startup’s restructuring last year, when it transformed from a nonprofit into a for-profit public benefit corporation. Microsoft holds approximately a 27% stake in OpenAI, valued at around $135 billion. While Microsoft is no longer OpenAI’s exclusive cloud provider—a relationship that helped finance the AI company’s early growth—it will retain commercial rights to OpenAI products through 2032.

The company’s AI-focused cloud computing business segment demonstrated particularly strong performance, with sales reaching $32.9 billion for the last quarter of 2023. This represents a 29% increase from the same period the previous year and surpassed analysts’ expectations of $32.4 billion.

Despite the better-than-expected results across the board, Microsoft’s stock dropped nearly 5% in after-hours trading following the earnings announcement. Zacks Investment Research analyst Bryan Hayes suggested that this decline likely reflected “investor scrutiny” over Microsoft’s substantial spending on infrastructure components like computer chips and data centers necessary to power its AI initiatives.

During an earnings call with investors, Microsoft CEO Satya Nadella emphasized that the company remains in the “beginning stages” of AI diffusion—a term referring to the spread of AI technology across various sectors of the economy. This suggests Microsoft views its current AI investments as laying groundwork for future growth rather than immediate returns.

The strong quarterly performance comes amid an intensifying race among tech giants to dominate the rapidly expanding AI market. Microsoft has been aggressively integrating AI capabilities across its product lineup, including its Office suite, Windows operating system, and particularly its Azure cloud services, which compete directly with Amazon Web Services and Google Cloud.

For Microsoft, the cloud and AI division has become an increasingly vital component of its business strategy. The 29% growth in this segment outpaces the company’s overall growth rate, indicating the outsized importance of these technologies to Microsoft’s future.

The company’s significant financial commitment to AI infrastructure development reflects a long-term strategic bet that artificial intelligence will transform numerous industries and create substantial new revenue opportunities. However, as the stock price reaction suggests, investors may be concerned about the massive capital expenditures required in the near term, even as they acknowledge the potential long-term benefits.

As AI adoption continues to accelerate across industries from healthcare to manufacturing to financial services, Microsoft’s early and substantial investments position the company as one of the leading providers of enterprise AI solutions. The quarter’s results suggest that despite the substantial costs involved, Microsoft’s AI strategy is gaining traction in the marketplace.