Microsoft has exceeded expectations in terms of both sales and profit for the last quarter, reporting a revenue of $77.7 billion (€6.62 billion) and an income of $30.8 billion (€26.52 billion). Despite this strong performance, the company surprised some investors with its significant investment in cloud and AI infrastructure, which led to a drop of more than 3% in its stock price after hours. This comes as Microsoft's Azure services recover from an outage that occurred on Wednesday.
The tech giant spent nearly $35 billion (€30.13 billion) during the July to September quarter on capital expenditures aimed at supporting AI and cloud demand. Approximately half of this amount was allocated to computer chips, while the remaining portion was used for data center real estate. This level of spending overshadowed the report of a 22% increase in quarterly profit to $30.8 billion (€26.52 billion), or $4.13 per share.
Microsoft mentioned that these results did not include the impact of its investments in OpenAI, which was an effort to "help clarify" how those losses affected the company's core business. Analysts had expected Microsoft to earn $3.67 per share on revenue of $75.38 billion (€64.90 billion), according to FactSet Research.
The results came a day after a new deal with OpenAI pushed Microsoft's valuation to $4 trillion (€3.44 trillion) for the second time this year. However, shares in Microsoft fell before the earnings announcement on Wednesday as the company dealt with the Azure outage. The stock dropped further—by more than 3%—in after-hours trading on Wednesday as investors evaluated the significance of the earnings report.
A key factor driving investor enthusiasm on Tuesday was the announcement of Microsoft’s revised business deal with its long-time partner OpenAI, the creator of ChatGPT and now the world’s most valuable start-up. While no longer OpenAI’s exclusive cloud provider, a relationship that helped fund the start-up’s early growth, Microsoft will retain commercial rights to OpenAI products through 2032 and gain a roughly 27% stake in OpenAI’s new for-profit arm.
Microsoft also revealed that it has already invested $11.6 billion (€9.99 billion) of the total $13 billion (€11.19 billion) it has committed to OpenAI. Previously, Microsoft's valuation surpassed $4 trillion (€3.44 trillion) in July, making it the second company after Nvidia to reach this milestone.
This week, Microsoft again joined Apple in crossing the $4 trillion (€3.44 trillion) valuation mark, while Nvidia achieved a different milestone: becoming the first company to reach $5 trillion (€4.31 trillion). These high valuations reflect the current investor enthusiasm around artificial intelligence, although some fear that this could turn into a bust if AI products do not deliver the expected transformation or profitability.
Revenue from Microsoft’s cloud-focused business segment reached $30.9 billion (€26.60 billion) in the quarter, representing a 28% increase compared to the same period last year and slightly exceeding analysts' expectations. Revenue from Microsoft’s workplace software, which includes tools such as email and word-processing applications, rose by 17% to $33 billion (€28.41 billion).
Microsoft's recent focus has been on promoting its flagship AI assistant, Copilot, to assist with various work tasks. Last week, the company introduced a new animated avatar exterior for Copilot called Mico.