Microsoft’s profits soar 33% thanks to investments in artificial intelligence and cloud computing

Microsoft Corp. said Tuesday that its profits for the October-December quarter soared 33%, boosted by its significant investments in artificial intelligence technology. The company said that increase largely reflected growth in its cloud computing unit, where Microsoft focuses most of its AI investments.

The company reported net income for the quarter of $21.87 billion, or $2.93 per diluted share, beating Wall Street expectations of $2.79 per share. The Redmond, Washington-based software maker posted revenue of $62.02 billion in the quarter, up 18% from $52.75 billion a year earlier, also beating expectations.

“Microsoft is firmly establishing itself as a leader in the AI ​​race,” said Jeremy Goldman, director of briefings at Insider Intelligence. In addition to other benefits, Goldman suggested that AI technology could help expand Microsoft’s involvement in digital advertising. His firm anticipates Microsoft’s global advertising revenue will grow 12% this year to $14.93 billion, but also notes that Google is expected to expand its much larger advertising business by 10% in the same period.

Analysts surveyed by FactSet Research expected Microsoft to generate revenue of $61.14 billion and are currently projecting revenue of $60.97 billion for the January-March quarter. The results are the first to incorporate the financials of video game maker Activision Blizzard, which Microsoft formally acquired on Oct. 13 for $69 billion.

Microsoft CEO Satya Nadella speaks at an event at the Chatham House think tank in London, Jan. 15, 2024. Microsoft will release second-quarter financial results after the market closes on Tuesday, Jan. 30, 2024. Credit: AP Photo /Kin Cheung, File

A Microsoft Surface logo is seen before an NFL football AFC divisional playoff game between the Houston Texans and the Baltimore Ravens, on Jan. 20, 2024, in Baltimore. Microsoft will release second quarter financial results after the market closes on Tuesday, January 30, 2024. Credit: AP Photo/Matt Slocum, File

That merger boosted Microsoft’s revenue growth by four points, according to James Ambrose, the company’s director of investor relations. But it also reduced operating profits by about $440 million as a result of accounting adjustments for purchases and integration and transaction costs, he said.

Microsoft shares initially fell in after-hours trading, falling nearly 2% to $400.86, although they later recovered much of that loss. Analysts suggested that investors were initially concerned about Microsoft’s continued aggressive investment plans.

Microsoft’s cloud-focused business segment outperformed its other divisions, with revenue increasing 20% ​​from the same period last year to $25.88 billion for the quarter.

Revenue from the company’s Office email suite and other workplace products, as well as the professional social network LinkedIn, grew 13% to $19.25 billion during the quarter.

And the Windows-led personal computing business, which includes the company’s Xbox video games and services, grew 19% to $16.89 billion. Those numbers reflected the enormous impact of adding Activision Blizzard to the segment. Microsoft’s Xbox-related revenue grew 61% in the quarter, although the company attributed 55 points of that figure to the addition of Activision, known for producing the hit Call of Duty game series.

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