Microsoft stock surges 9% after strong earnings and revenue beat, lifts outlook

 

Microsoft stock surges 9% after strong earnings and revenue beat, lifts outlook

After-hours trading on Wednesday saw a 9% increase in Microsoft shares after the company's impressive earnings report surpassed Wall Street's forecasts. Azure, the company's cloud computing division, and the high performance of its AI and productivity services were the main drivers of the tech giant's expansion.

Quarterly Results Smash Expectations

Microsoft announced its fiscal third quarter, which concluded on March 31:

$3.46 in earnings per share (compared to an estimated $3.22)

Revenue: $70.07 billion (anticipated to be $68.42 billion)

Additionally, the business predicted fourth-quarter revenue of $73.15 billion to $74.25 billion, which was comfortably higher than the analysts' $72.26 billion prediction. Azure is predicted to increase between 34% and 35% annually in constant currency, above projections of 31.5%.

Cloud and AI Lead the Way

Revenue from Microsoft's Intelligent Cloud division, which includes Azure, reached $26.75 billion, a 21% increase and a higher amount than the $26.16 billion forecast. Azure alone had a 33% increase, with almost half of that growth coming from AI-related services. In order to fulfill the increasing demand, CEO Satya Nadella highlighted the company's quick scale-up of AI technology.

CFO Amy Hood stated, "Demand is growing a bit faster." "After June, we now anticipate some limitations in AI capacity."

Because of Microsoft's strong investment in AI infrastructure, capital expenditures (excluding finance leases) reached $16.75 billion during the quarter, up roughly 53% over the same period last year.

 

Strong Across Segments

Productivity and Business Processes: Revenue exceeded forecasts of $29.57 billion by 10% to $29.94 billion. LinkedIn and Microsoft Office subscriptions are still doing well, but hiring-related businesses are under pressure from a weak labor market.

Additional Personal Computing: This segment, which comprises Xbox, Surface, and Windows, generated $13.37 billion, a 6% increase and more than the $12.66 billion estimate. As support for Windows 10 draws to a close in October, commercial users' usage of Windows 11 has increased by 75%.

"We continue to see increased commercial traction as we approach the end of support for Windows 10," Nadella said, highlighting the growing momentum.

Outlook and Trade Concerns

Company performance and productivity: Revenue increased 10% to $29.94 billion, above expectations of $29.57 billion. Although a weak job market puts pressure on hiring-related services, Facebook and Microsoft Office subscriptions are still doing well.

More Personal Computing: This group, which includes Xbox, Surface, and Windows, produced $13.37 billion, 6% more than the $12.66 billion projected. Commercial users' adoption of Windows 11 has increased by 75% as Windows 10 support draws to a close in October.

"As we approach the end of support for Windows 10, we continue to see growing commercial traction," Nadella said, underlining the growing momentum.

AI Partnership Updates and Financial Notes

 

Additionally, Microsoft revised its contract with OpenAI to grant it flexibility and the right-of-first-refusal access to computer power. The company's "other costs" for the quarter came to $623 million, primarily due to losses on savings, compared to $2.29 billion the previous quarter.

By Wednesday's market closing, Microsoft's stock was down 7% so far this year, while the S&P 500 had dropped 6%.