Microsoft Praises The Power Of AI, But Shares Fall As The Market Absorbs Expenses

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Microsoft exceeded market estimates for quarterly profit and revenue on Tuesday, thanks to new artificial-intelligence features that helped attract customers to its Azure cloud service as they built out their own AI services. However, Microsoft’s shares were down 1% after-hours as investors absorbed news about rising costs to develop these AI features. The company forecast operating expenses of $15.8 billion to $15.9 billion in the current quarter, up from $15.4 billion in the previous one. It also said it expects capital expenditures to “increase materially” on a sequential basis.


Collaborating with OpenAI, Microsoft has integrated chatbots into its core products such as its Office software and Bing search engine over the past year, attracting business customers eager to try the tech industry’s next breakthrough. Investor buzz over AI helped Microsoft’s shares rise by 57% in 2023. However, this has also increased Microsoft’s costs, and investors are watching growth in its Azure and Office business closely to see if that keeps up with the massive investments it plans to pour into data centers this year to deliver generative AI.


“We’ve moved from talking about AI to applying AI at scale,” CEO Satya Nadella said in a statement. “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.”


Brett Iversen, Microsoft’s vice president for investor relations, told Reuters that 6% of the growth rate of cloud-computing platform Azure in the second quarter was attributable to AI, twice the percentage in the first quarter. There are now 53,000 Azure AI customers, with a third being new to the service in the past 12 months, Nadella told analysts on a conference call.


Total revenue grew 18% to $62 billion in the quarter ended Dec. 31, compared with the average analyst estimate of $61.12 billion, according to LSEG data. Adjusted profit of $2.93 per share beat an average estimate of $2.78 per share.


Revenue at Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, grew 20% to $25.9 billion. Sales of Azure grew 30%, its best growth rate in four quarters, compared with a 27.7% consensus estimate from Visible Alpha and outstripping a 25.7% growth in Google Cloud.

Sales at Microsoft’s More Personal Computing segment, which includes its Windows operating system and gaming business, grew 19% to $16.9 billion, powered in part by the close of its $69 billion purchase of “Call of Duty” maker Activision Blizzard. Analysts had expected $16.8 billion.


Microsoft’s Productivity and Business Process segment, which contains the LinkedIn social network in addition to Office sales, reported that sales rose 13% to $19.2 billion, just beating estimates.


“The software giant has delivered a healthy set of results, but not in a strong enough dose to appease the market,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.


AI-related companies lost $190 billion in stock market value late on Tuesday after Microsoft, Alphabet, and Advanced Micro Devices delivered quarterly results that failed to impress investors who have sent their stocks soaring.

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