Microsoft revenue rises despite slowing Azure cloud platform growth

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Microsoft’s revenue and earnings came in ahead of Wall Street’s expectations in its latest quarter, despite a further deceleration in the growth of its Azure cloud platform as customers seek to increase the efficiency of their cloud spending.

The news left Microsoft’s shares little changed in after-market trading on Tuesday, ahead of a call with analysts in which the company was expected to lay out financial guidance for the start of its new fiscal year.

Microsoft’s shares have risen nearly 50 per cent since the start of the year on hopes that its head-start in generative AI will boost revenues in coming quarters. In the first sign that AI could start to lift sales, Microsoft said three months ago that revenue from generative AI was likely to add 1 percentage point to its Azure revenue in the most recent quarter.

Azure growth slowed to 27 per cent in constant currency terms in the latest period, at the top of end of the company’s guidance but down from 31 per cent in the first three months of 2023 and 46 per cent a year ago. Microsoft has attributed the slowdown to efforts by customers to “optimise” their spending in the face of economic uncertainty.

The latest results were boosted by 17 per cent growth in revenue from Office 365, a point ahead of Microsoft’s forecast, reflecting the shift of customers to the higher-paying E5 version of the software. It also said it benefited from unexpectedly early moves by PC makers to build machines in preparation for the autumn, leaving sales of Windows to OEMs (original equipment manufacturers) down only 12 per cent from a year ago, compared to the 28 per cent decline recorded in the preceding three months.

Overall, Microsoft reported revenue of $56.2bn, up 8 per cent from a year before, while earnings per share rose 21 per cent to $2.69. Wall Street had been expecting revenue of $55.4bn and earnings of $2.55 a share.

News that Microsoft would charge a higher-than-expected $30 a month for generative AI in the widely used Office software suite pushed its shares to a record high last week, though it has yet to announce when the new feature will be available.