AI and cloud growth fuel first quarter revenue boost for Microsoft

AI and cloud growth fuel first quarter revenue boost for Microsoft

Microsoft’s all-in approach to AI appears to pay off as the tech giant posted strong financial results for the first quarter of its 2024 financial year.

AI and cloud-fueled growth has seen Microsoft post a double-digit revenue increase during the first quarter of its 2024 financial year, despite the ongoing weakness with PC sales.

For the quarter ending September 30, Microsoft generated a net income of US$22.3 billion, an increase of 27 per cent. It also reported a 13 per cent increase in overall revenue at US$56.5 billion.

Ever since Microsoft-backed OpenAI brought ChatGPT into the general consciousness late last year, Microsoft has gone all in on its own AI strategy, with its flagship Copilot tool about to be rolled out across the company’s entire product portfolio.

As a result of this strategy, revenue in Productivity and Business Processes was US$18.6 billion and increased 13 per cent, a figure that is expected to continue growing after Copilot becomes generally available from November 1, CFO Amy Hood said on a call with analysts after the results were published.

“With Copilots, we are making the age of AI real for people and businesses everywhere,” said CEO Satya Nadella on the same call. “We are rapidly infusing AI across every layer of the tech stack and for every role of business process to drive productivity gains for our customers.”

Office Commercial products and cloud services revenue increased 15 per cent year over year, driven by Office 365 Commercial revenue growth of 18 per cent. Office Consumer products and cloud services revenue increased by 3 per cent, while Dynamics products and cloud services revenue increased by 22 per cent, which Microsoft attributed to the 28 per cent revenue growth Dynamics 365 saw during this quarter.

Elsewhere, revenue in Microsoft’s Intelligent Cloud segment increased by 19 per cent to US$24.3 billion, with Azure and other cloud services posting a 29 per cent increase in revenue. In contrast, Google Cloud’s revenue grew a mere 22% during the same quarter, the company’s slowest growth in nearly three years.

Microsoft has the “most comprehensive cloud footprint”, with more than 60 data centre regions worldwide, Nadella told analysts, adding that the company also has its AI services deployed in more regions than any other cloud provider.

Despite the two-year tumultuous regulatory battle Microsoft endured trying to complete its acquisition of gaming studio Activision Blizzard, Xbox content and services revenue increased by 13 per cent. Search and news advertising revenue also saw an increase, up 10 per cent year-on-year.

However, not every segment saw double-digit growth during the quarter. Microsoft’s More Personal Computing segment saw a more modest revenue increase, up 3 per cent to US$13.7 billion. Although Windows OEM and Windows Commercial products and cloud services grew by 4 per cent and 8 per cent, respectively, device revenue saw a year-on-year decline of 22 per cent. Global PC shipments have declined 7.6 per cent year over year, according to a recent report from IDC.

“For our full financial year 2024, we remain committed to investing for the cloud and AI opportunity while also maintaining our disciplined focus on operating leverage,” Hood told analysts. “I am confident that as a team, we will continue to deliver healthy growth in the year ahead, driven by our leadership in commercial cloud and our commitment to lead the AI platform wave.”

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