Microsoft’s Q2 revenue surges 18%, driven by AI and cloud success

By Dina Bass and Jackie Davalos

Microsoft Corp. posted its strongest revenue growth since 2022, spurred by interest in new artificial intelligence products that in turn are driving renewed spending on cloud computing.

Revenue in the second quarter, which ended Dec. 31, rose 18% to $62 billion, while profit was $2.93 a share, the company said in a statement Tuesday. Analysts polled by Bloomberg on average estimated per-share earnings of $2.78 on sales of $61.1 billion.

Azure cloud-services sales gained 30%, compared with 29% growth in the previous quarter. That exceeded the 28% growth analysts projected. In a call with analysts, the company said growth in the Azure division would “remain stable” during the current quarter. 

Investors have bid up the shares in recent months on a bet that Chief Executive Officer Satya Nadella will turn Microsoft into an artificial intelligence powerhouse by partnering with startup OpenAI. Optimism for Microsoft’s AI prospects has sent its market capitalization above $3 trillion, passing Apple Inc. as the world’s most valuable company.

And there are signs that efforts to bake AI into a variety of marquee products including Azure, Office and Windows are starting to pay off. But some investors were clearly hoping for more, and the shares slid a few percentage points in late trading before recovering some of their losses.   

“Microsoft had a lot to live up to this quarter,” Hargreaves Lansdown analyst Sophie Lund-Yates wrote in a note to clients. The company “delivered a healthy set of results,” she added, “but not in a strong enough dose to appease the market.”

In an interview, Chief Financial Officer Amy Hood said AI boosted Azure’s growth rate by six percentage points. Going forward, she said, interest in AI products will prompt customers to step up their use of such basic services as storage and computing power. “We want to be the place where people can most confidently come to run AI models,” Hood said.

For his part, Mark Moerdler, an analyst at Sanford C. Bernstein & Co., said the fact that six percentage points of Azure growth came from AI means “the rest of Azure continues to slow.”

Commercial cloud product revenue rose 24% to $33.7 billion, Microsoft said in a slide presentation on its website. The company on Nov. 1 widely released the corporate version of its Microsoft 365 Copilot — an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams — to large customers. This month, Microsoft expanded access to smaller firms and released a $20 consumer version. The new tools cost companies an extra $30 a month on top of their existing subscriptions, and could one day become a meaningful source of recurrent revenue.

Microsoft’s Office cloud service for business users also topped 400 million paid customers in the quarter, Hood said.

Sales in the More Personal Computing unit rose to $16.9 billion, slightly topping the average analyst projection. Global personal computer sales rose 0.3% in the quarter, according to market research firm Gartner Inc., the first increase in two years and a sign that demand is stabilizing.

Xbox Revenue

Xbox content and services revenue jumped 61%, the first quarterly result that included Activision Blizzard Inc., acquired in October to bolster the Xbox business. Last week, the company cut 1,900 jobs across the game division, many of them at Activision Blizzard. On Monday, Xbox named a new president for the Blizzard unit, Johanna Faries, as Microsoft tries to integrate the acquired businesses and jump-start growth in gaming revenue. 

The Redmond, Washington-based company has invested $13 billion in startup OpenAI, a partnership that vaulted the 48-year-old software maker to the forefront of a race to build new applications that let customers generate fresh content from their own data and information scraped from the web. The partnership underwent a brief period of drama in November when OpenAI’s board ousted co-founder and key Nadella ally Sam Altman, then returned him to his leadership role at the company a few days later — after Microsoft offered to hire him instead. 

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