Cloud strength and AI excitement boost Microsoft revenue

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Resilient demand for cloud computing and a growing excitement about artificial intelligence drove record quarterly revenues for Microsoft in the final three months of 2023.

Revenue at Microsoft’s closely watched cloud division, its biggest sales driver that includes its Azure cloud computing platform, rose 20 per cent to $25.9bn, ahead of analyst expectations for $25.3bn, with Azure sales growth reaching 30 per cent.

Total revenue climbed 18 per cent to a record $62bn, ahead of forecasts for $61.1bn.

Earnings per share of $2.93 were well ahead of analyst forecasts for $2.77. Microsoft shares were down almost 1 per cent in after-hours trading.

Investors have been watching for signs that huge investments in generative AI would boost the revenues and profits of Microsoft and its Big Tech competitors. Microsoft has been catapulted into the centre of the generative AI race thanks to its deal with OpenAI, the start-up behind the AI chatbot ChatGPT, to which it has committed up to $13bn. 

The deal has given the world’s second-largest vendor of cloud services an early lead in the race to develop and deploy generative AI. Excitement about the fast-developing technology has propelled a rally in Microsoft’s share price, which has jumped more than 60 per cent over the past 12 months. It has overtaken Apple as the world’s most valuable company as its market cap pushed above $3tn.

“We’ve moved from talking about AI to applying AI at scale,” Microsoft chief executive Satya Nadella said on Tuesday. “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”

Last quarter, Microsoft said that AI had boosted Azure cloud platform revenues by about 3 percentage points, and that Azure revenue growth would benefit from an “increasing contribution from AI”.

Analysts have been watching closely to see how many customers are using Microsoft 365 Copilot, a generative AI assistant integrated into the company’s suite of productivity apps. Microsoft in January made the tool — which is priced at $30 per user per month for businesses — available to individuals and to small and medium-sized businesses.