Propelled by increasing demand for artificial intelligence services, Microsoft cloud solutions, which includes the Azure platform, was the star of the quarter, bringing in $38.9 billion for 22 percent growth year-over-year. Revenue was $65.6 billion, up 16 percent, while profit increased by 11 percent, to $24.7 billion. While Microsoft financials don’t break out AI — now embedded across numerous products — Chairman and CEO Satya Nadella says AI “is on track to surpass an annual revenue run rate of $10 billion” by December 31, “making it the fastest business in our history to reach this milestone.”

That Nadella thinks Microsoft customers will spend more than $10 billion on products that include AI in its current fiscal year is relevant, suggests Axios, because it “shows how Microsoft is seeing additional revenue, largely from its Azure cloud business, but also across other areas including its Microsoft 365 productivity business.”

Microsoft earnings for the period ending September 30 showed $24.1 billion in revenue generated by the Intelligent Cloud (a subset of Microsoft Cloud that specifically include Azure and other cloud services) for year-over-year growth of 20 percent, according to the earnings release.

Though “the results surpassed Wall Street’s expectations and Microsoft’s own predictions,” reports The New York Times, the company’s more conservative forecast for the next quarter sent the stock down 3.4 percent in early trading Thursday.

The Wall Street Journal quotes Microsoft CFO Amy Hood saying the slowdown was due “in part to the need for the company to build up more cloud computing capacity to meet AI demand.”

The company said it spent $20 billion on capital expenditures in the reporting quarter, up 79 percent from the same period last year, and is committed to spending even more in the quarter ending December 31.

“The company has bet heavily on artificial intelligence through its investments in the startup OpenAI,” writes NYT. That investment, reportedly totaling $14 billion, has given the company “an enviable position as the vanguard of the new technology,” with Microsoft “gaining share from competitors,” based on analysis offered by Raymond James.

Gaming was an exceptionally bright spot on the earnings report, with revenue of $5.6 billion, a 44 percent increase year-over-year. The company closed its $69 billion purchase of Activision Blizzard in October 2023.

“The company does not disclose sales of its own AI assistants, which cost business customers $30 per month,” adds NYT, noting that “its overall Microsoft 365 commercial cloud revenue, which includes Excel, Teams and Word, was up 15 percent.”

Related:
Tech Giants See AI Bets Starting to Pay Off, The Wall Street Journal, 11/1/24
Meta and Microsoft: AI’s Spending Champs Won’t Be Tapping the Brakes, The Wall Street Journal, 10/31/24
Microsoft Forecasts Slower Cloud Business Growth in Second Quarter, Reuters, 10/31/24
Microsoft Can’t Build Data Centers Fast Enough to Meet AI Demand, Quartz, 10/31/24