Microsoft reports $20.1B quarterly profit as it promises to lead ‘the new AI platform shift’

Microsoft on Tuesday reported fiscal fourth-quarter profit of $20.1 billion, or $2.69 per share, beating analyst expectations for $2.55 per share.

It posted revenue of $56.2 billion in the April-June period, up 8% from last year. Analysts had been looking for revenue of $55.49 billion, according to FactSet Research.

CEO Satya Nadella said the company remains focused on “leading the new AI platform shift.”

“Organizations are asking not only how—but how fast—they can apply this next generation of AI to address the biggest opportunities and challenges they face—safely and responsibly,” he said in a prepared statement.

Microsoft was an early mover in this year’s hype around “generative AI” tools that can help people write documents and create new images and other media. It capitalized on its multibillion dollar investments in ChatGPT-maker OpenAI to launch a chatbot for Microsoft’s Bing search engine and similar tools tailored to its business customers.

Macquarie analyst Sarah Hindlian-Bowler said investors have been focused on Microsoft’s early revenue from those artificial intelligence investments, the performance of the Azure cloud computing platform and the likelihood that Microsoft will close its deal to buy video game company Activision Blizzard, which could help boost gaming revenue and drive more users to the Xbox game system and other Microsoft platforms.

More than 18 months after announcing the $69 billion deal, Microsoft is still negotiating with a British antitrust regulator over concerns it will harm competition. The U.S. Federal Trade Commission also opposed the transaction but lost a court fight to stop it.

“We still expect a successful close as the company works toward an amenable solution that satisfies the U.K.’s concerns,” Hindlian-Bowler said in an analyst note ahead of Tuesday’s earnings.

Quarterly sales were highest in Microsoft’s cloud business segment, which the company said grew 15% from the same time last year to $24 billion. Much of that was driven by its flagship Azure platform “and other cloud services revenue,” which grew 26%.

Microsoft doesn’t reveal the total revenue for its Azure business, though a document inadvertently disclosed during its recent court fight with the FTC showed it as $34 billion last year, Hindlian-Bowler said. Microsoft has declined to comment on that number. It’s long been seen as the runner-up to Amazon’s dominant cloud platform, Amazon Web Services.

Microsoft’s second-biggest business segment—centered on productivity software such as its Office suite of workplace products—grew 10% to $18.3 billion in sales for the April-June quarter.

While AI has captivated the attention of the public and investors, Microsoft is also still heavily reliant on its personal computing business centered around the licensing fees paid by the makers of computers running its Windows software.

Microsoft made $13.9 billion from its personal computing business segment in the quarter, down 4% from the same time last year.

Worldwide PC shipments in the April-June quarter dropped 16.6% from the same time last year, marking the seventh consecutive quarter of year-over-year decline, according to market research group Gartner. However, the market is starting to stabilize and demand could grow again in 2024, Gartner said.

Microsoft has laid off hundreds of workers in recent months, including many around its headquarters in Redmond, Washington, according to notices it sent to government agencies. That’s on top of the 10,000 employees, almost 5% of its workforce, that it cut earlier this year.

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