Microsoft Cloud drove record sales and profits for Q2, which saw a year-over-year revenue gain of 8 percent to $56.2 billion for April through June. Net income topped $20 billion, a 20 percent gain that beat analyst expectations and the company’s own estimates. Microsoft Cloud revenue for Q2 was up 21 percent, to $30.3 billion. And the company is beginning to see the results of its investments in artificial intelligence. Q2 is Microsoft’s second record-setting quarter this year, topping the three-month high of $52.9 billion in Q1. The previous profit record was $18.8 billion in Q4 2021.

Capital expenses increased to $10.7 billion, when the company invested in building out data centers for its cloud services and also purchased a lot of expensive chips used to develop AI, investments that are clearly paying off.

“We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage,” Microsoft Chairman and CEO Satya Nadella said in the Q2 earnings release. “Organizations are asking not only how — but how fast — they can apply this next generation of AI to address the biggest opportunities and challenges.”

Nadella said Microsoft’s Azure OpenAI Service now has more than 11,000 customers using it to customize and deploy generative AI models built by its partner, OpenAI.

“Analysts at Bank of America told investors last week that Azure was gaining market share because technology executives at the companies that Microsoft served viewed the platform ‘as the leading AI offering,’” reports The New York Times.

CNBC notes that while Microsoft controls a 20.5 percent share of global cloud infrastructure, trailing Amazon at 40 percent, Microsoft “is No. 1 when it comes to selling cloud-based AI services.” Revenue from Microsoft’s “Azure and other cloud services increased by 26 percent year-over-year, faster than all other major product areas other than the Dynamics 365 cloud-based enterprise software.”

Wall Street has also gotten behind Microsoft in recent months as the company introduced a host of generative AI features across various product lines. Its Bing search engine was updated with an integrated chatbot based on OpenAI’s GPT-4, and an AI assistant was added to the Microsoft Office 365 productivity suite.

The monthly fee of $30 per user for the Office 365 Copilot AI subscription “was more than analysts had expected and pushed Microsoft’s market capitalization above $2.6 trillion for the first time,” according to NYT.

Related:
Windows and Devices Take a Hit in Microsoft’s Q4 Earnings, but Xbox Is Mostly Up, The Verge, 7/25/23
Microsoft Touts AI as Cloud Demand Cools, The Wall Street Journal, 7/25/23