Microsoft beats expectations with 18% revenue jump to US$77.7b, but shares slide

The head of tech giant Microsoft has warned that the world is rapidly "running out of computing capacity". Photo / 123rf

Microsoft has reported stronger-than-expected quarterly results.

Revenue jumped 18% to US$77.7 billion ($135b) as demand for artificial intelligence (AI) services boosted its cloud computing business.

But shares in the Redmond, Washington-based company slid by as much as 3.6% in after-hours trading amid concerns about the pace of AI monetisation.

Microsoft’s cloud revenue climbed 26% to US$49.1b, underscoring robust enterprise demand for AI-powered services.

However, the results landed as its Azure cloud computing service was experiencing a shutdown that was affecting customer companies across the globe as well as Microsoft’s own websites.

The company’s Azure cloud platform posted particularly strong growth, with revenue up 40%.

Microsoft has continued investing heavily in artificial intelligence, including big investments in data centres and its partnership with ChatGPT maker OpenAI.

The company said capital expenditures for the quarter reached US$34.9b, more than what was expected, with big tech companies outdoing one another in announcements of major AI spending.

After renewing its partnership with OpenAI on Tuesday, Microsoft now holds 27% in the company, which has quickly grown to become the world’s most valuable private firm with a US$500b valuation.

The deal was well-received on Wall Street and saw Microsoft’s market capitalisation cross the US$4 trillion mark in trading on Tuesday (local time).

These AI investments, however, also weighed on profits, with OpenAI-related losses of US$3.1b impacting net income in the quarter.

Chief financial officer Amy Hood said the company “delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income and earnings per share”.

Microsoft’s productivity software business, including Office 365, generated US$33.0b in revenue, up 17%.

The LinkedIn professional network grew 10%, while gaming revenue from Xbox increased just 1%.

Microsoft shares have gained more than 10% this year, though the stock has underperformed some tech rivals.

The company faces intensifying competition in cloud computing from Amazon Web Services and Google Cloud, while also navigating regulatory scrutiny over its AI partnerships and market dominance.

Australia’s competition watchdog this week accused Microsoft of misleading 2.7 million customers into paying for its AI assistant Copilot. The company could face massive fines.

– Agence France-Presse