Skip navigation
Microsoft has been bolstered by recovering cloud-computing growth and AI Image: Bloomberg

Microsoft Gains After Cloud Growth Drove Revenue Surge

OpenAI partnership has helped software maker lure corporate customers keen to use ChatGPT.

(Bloomberg) -- Microsoft Corp. shares were on track for their biggest gain in three months after it reported strong sales, bolstered by recovering cloud-computing growth amid demand for new artificial intelligence products.

Revenue in the fiscal first quarter, which ended Sept. 30, rose 13% to $56.5 billion, the most in six quarters and topping analysts’ average projections. Profit was $2.99 a share, the software maker said in a statement Tuesday. Azure cloud-services sales gained 29%, compared with 26% growth in the previous quarter. 

Chief Executive Officer Satya Nadella is revamping the company’s entire product suite, including Office, Windows, search and security software, to add features based on OpenAI technology. The partnership has helped Microsoft lure corporate customers keen to use ChatGPT and other new technologies — which answer questions and generate content — in their own applications. The company, which already counts most businesses as clients of its productivity tools and operating systems, has also been testing a pricier, AI-enhanced version of its Office software.

“If we see stabilization in Azure then the euphoria returns,” said Dan Morgan, senior portfolio manager at Synovus Trust Co. “Enterprise software within tech is probably one of the best spaces now and Microsoft looks pretty strong.”

The shares rose 3.7% as the markets opened on Wednesday, the biggest increase since July 18. 

Microsoft’s results, and the investor enthusiasm that followed, contrasted with a third-quarter earnings report from rival Alphabet Inc., parent of Google, which has been trying to catch Azure in cloud-computing market share. Alphabet’s revenue and profit from its cloud business missed analysts’ estimates, sending shares down 6.5% in early trading. The two companies, which both trail Inc. in cloud infrastructure, have been racing to build up their AI offerings as a way to make their platforms more enticing to customers. Amazon is set to report its quarterly results Thursday.

In the recent period, Microsoft reported better-than-projected commercial sales, while a steadier personal-computer market helped shore up revenue. Internet search, a service the software maker has imbued with the same technology as ChatGPT, also generated higher sales than forecast, Chief Financial Officer Amy Hood said in an interview. She said Microsoft gained share in markets like cloud, security software and business applications in areas such as finance and customer management.

“It was good execution, the PC market a little better and cloud numbers a little better,” said Hood, explaining why overall quarterly revenue far exceeded her July forecast. “I’m pretty pleased.”

Azure sales were boosted by the cloud service that lets customers use OpenAI products, which now has 18,000 customers, up from 11,000 in the prior quarter. 

Hood said on a conference call that Azure revenue will grow 26% or 27%, adjusting for currency impacts, in the quarter ending in December. In the second half of the year, Azure growth will be “roughly stable” and will show increasing impact from AI, she said. 

The Redmond, Washington-based company has invested $13 billion in startup OpenAI, a partnership that vaulted the 48-year-old software maker to the forefront of a race to build new applications that let customers generate fresh content from their own data and information scraped from the web. Even as Microsoft has cut jobs and frozen salaries, it has spent heavily on the data centers and chips required for the sprawling AI effort. 

The company said revenue from corporate cloud products rose 24% to $31.8 billion. While AI products have been rolled out all year, Microsoft is still figuring out how best to make money from them. In a major test, the company on Nov. 1 will widely release the corporate version of its Microsoft 365 Copilot, an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams. Customers will pay an extra $30 a month on top of their existing subscriptions. 

In a bid to boost advertising sales and take share from Google, Microsoft has added ChatGPT technology to its Bing search engine. Search and news advertising sales increased 10% in the quarter. Microsoft also has started previewing AI-based security software with customers, and says many are signing up for its Azure cloud offering that includes OpenAI tools.

Now, investors are waiting for Microsoft to provide hard data and forecasts on how the new AI products will boost the fortunes of the company’s far-flung divisions, Morgan said. “I saw a commercial during the football game where LG has an AI washing machine — it’s getting ridiculous,” he said of the AI hype cycle. “So we want to know if we are getting to see tangible impact on Microsoft numbers.”

Earlier this month, Microsoft completed its $69 billion purchase of Activision Blizzard Inc. The long-delayed close of the deal — announced in January 2022 — came after the end of the quarter. Hood said Xbox content and services revenue still rose 13%, fueled by the launch of ZeniMax’s Starfield and growth in subscriptions. Still, Microsoft has yet to provide details about how the Activision purchase will address deficiencies in its lineup, particularly in mobile gaming.

Accounting for the acquisition and integration costs will total $400 million in the December quarter, and $900 million in each of the following two quarters, Hood told analysts.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.