Microsoft Beats Financial Expectations Despite Worries About Economy
Microsoft’s cloud computing business drove a surprisingly strong quarter despite pressure from the slowing U.S. economy, the company said on Tuesday.
Revenue in the first three months of the year was up 7 percent from a year earlier to $52.9 billion, and profit was up 9 percent to $18.3 billion. Both exceeded Wall Street expectations.
Microsoft’s cloud business — which includes Azure, its cloud computing product, and its Microsoft 365 platform — had $28.5 billion in revenue, up 22 percent from a year earlier.
Sales of Azure, a key result watched by investors, grew 27 percent, which was in line with investors’ expectations. Still, that was a drop from a 46 percent increase the year before. Overall, the segment that the company calls Intelligent Cloud was up 16 percent from a year earlier, which was better than had been expected.
Microsoft’s cloud products are “certainly a very important engine for us going forward,” said James Ambrose, Microsoft’s director of investor relations.
Shares of Microsoft stock jumped more than 8 percent in after-hours trading.
Microsoft, like many other technology companies, has been hindered by the sluggish economy after substantial growth during the pandemic. The company said in January that it would lay off 10,000 employees.
The company’s Windows business has slumped as the global market for personal computer sales has slowed. Revenue from Microsoft’s personal computing segment in its most recent quarter was $13.3 billion, a 9 percent decrease from a year earlier. Within that category, revenue from Windows OEM — original installations of Windows software on new computers — sank 28 percent, and devices revenue was down 30 percent.
Revenue from Microsoft’s video game segment, its most important consumer business, was down 4 percent from a year earlier, as Xbox hardware sales fell 30 percent.
Still, Microsoft’s stock has remained strong, buoyed in part by the company’s foray into the booming field of artificial intelligence.
Mr. Ambrose cautioned that the strong numbers did not necessarily suggest an improving macroeconomic environment. “I don’t know that it signals a major change in our view” of the economy, he said.
Amy Hood, Microsoft’s chief financial officer, said on a call with investors that sales growth in the current quarter could be flat compared with unusually strong quarter a year ago.
Microsoft is also poised to benefit from the boom in A.I. through its investment in OpenAI, the start-up behind the ChatGPT chatbot. It has already integrated ChatGPT into its Bing search engine, and the company has said it will incorporate A.I. into other Microsoft products as well.
Though the company said it was too early for the futuristic technology to affect its quarterly financial figures, Satya Nadella, its chief executive, said “A.I.” or “OpenAI” at least 24 times in his 15-minute introduction on the call with investors.
“We have the most powerful A.I. infrastructure,” Mr. Nadella said at one point, mentioning a variety of companies already using Microsoft’s A.I. tools in their businesses. To support high demand for its A.I. products, the company said, it will spend to scale up that infrastructure.
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