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AI drives up Microsoft revenues to record $62BN

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Microsoft beat Wall Street’s forecasts for second-quarter revenue as new artificial intelligence features helped to attract customers to its Cloud and Windows services.

Revenue rose by 18 per cent to a record $62 billion in the three months to the end of December compared with an ­average estimate from analysts of $61.12 billion.

Revenue at Microsoft’s Intelligent Cloud unit, including the Azure cloud computing platform that competes with Amazon AWS and Alphabet’s Google Cloud, rose by 20 per cent to $25.9 billion. Sales of Azure, for which Microsoft does not disclose a dollar figure, increased by 30 per cent.

Although the company’s shares ­slipped by $3.29, or 0.8 per cent, to $404.76 in late trading, Microsoft still maintained its market value at about $3.04 trillion, beating its rival Apple’s $2.91 trillion valuation.

Investors are watching Microsoft’s Azure and Office revenues closely to see what sales come from the tens of billions of dollars the company plans to pour into data centres this year in an effort to ­deliver generative AI. The Washington-based software group, founded by Bill Gates and the late Paul Allen in 1975, has committed to invest more than $10 billion in OpenAI, the ChatGPT maker.

Microsoft also owns the Windows operating system, LinkedIn, the social network, and Xbox, the gaming ­business. It bought Activision Blizzard, the video gaming company, for $69 billion last year. Last week, Microsoft said that it would shed 1,900 employees at ­Activision Blizzard and Xbox, representing about 8 per cent of the overall Microsoft gaming division.

Over the past three months, the ­technology company has rolled out its main AI tool — a $30-a-month “Copilot” for its Microsoft 365 service that can draft emails, make presentations and collate meeting highlights. Early sales of the product showed up in the company’s commercial sales of Office software, where revenue grew by 17 per cent.

Satya Nadella, the chairman and chief executive of Microsoft, said: “With Copilot, we are making the age of AI real for people and businesses everywhere.”

Sales at Microsoft’s More Personal Computing unit, which includes its Windows operating system and gaming business, grew 19 per cent to $16.9 billion due in part to its purchase of Activision ­Blizzard. Analysts had ­expected growth of $16.8 billion.

Microsoft’s productivity and business Process division, which contains the LinkedIn social network in addition to Office sales, reported that sales rose 13 per cent to $19.2 billion, just beating estimates.

Keith Weiss, an analyst at Morgan Stanley, said: “Gen AI has emerged as the top priority for [chief information officers] and Microsoft is uniquely well positioned, with the majority of CIOs expecting to use a Microsoft AI product in the next 12 months.”