Microsoft prepares to spend more on AI as its sales and profit surge
Microsoft reported Wednesday that its quarterly sales rose 18% to $77.7 billion, beating Wall Street expectations while surprising some investors with the huge sums of money it is spending to expand its cloud computing infrastructure and meet demand for artificial intelligence tools.
The software maker said it spent nearly $35 billion in the July-September quarter on capital expenditures to support AI and cloud demand, with nearly half of that on computer chips and much of the rest tied to data center real estate.
That overshadowed Microsoft’s report of a 22% increase in quarterly profit to $30.8 billion, or $4.13 per share, well above Wall Street expectations for the period. Microsoft said these results excluded the impacts of money invested in OpenAI, aiming to “help clarify” how these losses affected Microsoft’s core business.
Microsoft is expected to earn $3.67 per share on revenue of $75.38 billion, according to analysts surveyed by FactSet Research.
The results came a day after a new deal with OpenAI pushed Microsoft to a $4 trillion valuation for the second time this year. But Microsoft shares then fell hours before its earnings release Wednesday, as the company dealt with an outage affecting its Azure cloud computing platform. They fell even more – about 1% – after hours on Wednesday, as investors considered the importance of the earnings report.
The announcement of Microsoft’s revised business deal with longtime partner OpenAI, maker of ChatGPT and now the world’s most valuable startup, sparked investor excitement on Tuesday. Although it will no longer be OpenAI’s exclusive cloud provider, a relationship that helped fund the startup’s initial growth, Microsoft will retain commercial rights to OpenAI products until 2032 and will gain a roughly 27% stake in OpenAI’s new for-profit arm.
Microsoft also said on Wednesday that it has already invested $11.6 billion of the total $13 billion committed to OpenAI.
Microsoft’s valuation had already surpassed $4 trillion in July, making it the second company after Nvidia to reach this milestone. Microsoft and Apple crossed $4 trillion for the first time this week, while Nvidia hit a different milestone: the first $5 trillion company.
The sky-high valuations highlight the investor frenzy around artificial intelligence, which some fear could turn into bankruptcy if AI products are not as transformative or profitable as promised.
Quarterly revenue for Microsoft’s cloud-focused business segment was $30.9 billion, up 28% from the same period last year and slightly above analyst expectations. Revenue from Microsoft’s business software, which includes its email and word processing tools, rose 17% to $33 billion.
Microsoft’s recent focus has been on introducing its flagship AI assistant, Copilot, to help with various work tasks, and last week it gave it a new animated avatar exterior called Mico.
