AI demand leads to Microsoft sales, profit beating expectations

Microsoft Corp.’s quarterly sales and profit climbed more than projected, lifted by corporate demand for the software maker’s cloud and artificial intelligence offerings.

Revenue in the third quarter, which ended March 31, rose 17% to $61.9 billion, while profit was $2.94 a share, the company said in a statement Thursday. Analysts on average estimated per-share earnings of $2.83 on sales of $60.9 billion. The shares jumped in late trading.

Chief Executive Officer Satya Nadella has been infusing Microsoft’s entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarize documents and generate content or signing up for Azure cloud subscriptions featuring OpenAI products.

“Microsoft’s generative AI-specific revenue has already become a key stock driver,” said Dan Morgan, a senior portfolio manager at Synovus Trust Co. “Microsoft appears to be in an excellent position to thrive.”

Azure revenue gained 31% in the quarter, above an average prediction of 29% and picking up slightly from the 30% growth in the previous period. About 7% of that increase was attributable to AI, compared with 6% in the prior quarter.

The company forecast Azure growth in the current period, ending June 30, of 30% to 31%, above the 29% expectation of analysts polled by Bloomberg. For the fiscal year that begins July 1, Microsoft projected growth of more than 10% in sales and operating income.

“You’re seeing healthy growth really across Azure, in the non-AI and AI services, which is important,” Chief Financial Officer Amy Hood said in an interview. “While of course it’s still early in the long-term AI monetization opportunity, we feel good about where we are.” The company is pleased with what it’s seen so far in terms of customer adoption, she said.

Nadella told analysts on a conference call that Azure took market share from rivals, without specifying. More than 65% of Fortune 500 companies are using Azure OpenAI, the cloud service that lets customers access OpenAI’s latest technology.

Commercial cloud product revenue increased 23% to $35.1 billion, Microsoft said. Commercial bookings, a measure of future revenue, rose 29%, “quite a bit ahead of where we expected,” Hood said.

Microsoft’s shares gained about 5% in late trading. They had closed at $399.04 in New York. The stock climbed 12% in the March quarter on optimism that the company’s early lead in releasing generative AI products would boost sales.

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