On Thursday, Microsoft Corporation (NASDAQ: MSFT) released its third quarter earnings report.
Since the beginning of the year, Microsoft's stock is up 10%, compared with 15% and 22% for tech rivals Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN), respectively. restraining the rise. The three parties are locked in a battle to see who can provide the most comprehensive AI solution.
This week, Microsoft received a welcome boost from beverage giant The Coca-Cola Company (NYSE:KO), which has agreed to adopt Microsoft's Azure cloud services and develop AI technology across its business and network.
Third quarter results exceeded expectations.
Revenue for the quarter ended March 31 rose 17% from a year earlier to $61.86 billion, beating LSEG's estimate of $60.8 billion.
Net income was $21.94 billion, or $2.94 per share, also exceeding LSEG's expectations ($2.82 per share).
Overall commercial cloud revenue came in at $35.1 billion, beating Wall Street expectations of $33.93 billion. The Intelligent Cloud segment saw revenue increase by about 21%, with Microsoft's Azure cloud alone growing 31% and bringing in $26.71 billion. AI services contributed 7 percentage points to Azure and other cloud services revenue growth, up from 6 percentage points in the second quarter and 3 percentage points in the first quarter.
Capital spending increased 79% to $14 billion. Microsoft is investing heavily to secure Nvidia Corporation (NASDAQ: NVDA) graphics processing units needed to develop and train AI models. But even with all this investment, Microsoft lacks data center infrastructure, especially for deploying artificial intelligence models. CFO Amy Hood noted that demand for AI may outstrip available capacity in the short term. Microsoft is not the only AI vendor with this challenge, as Nvidia is also facing the same problem. Boosted by the AI boom, Nvidia reported that its revenue more than tripled in consecutive quarters. Microsoft, one of its customers, is now feeling the stress that Nvidia has been facing for some time due to the insatiable demand for AI. Just a month ago, Microsoft and Nvidia announced a major integration to accelerate the development of generative AI for enterprises, deepening their long-standing collaboration.
Additionally, Personal Computing revenue rose 18% year-over-year to $15.58, beating the StreetAccount consensus of $15.08 billion. This was driven by an 11% increase in Windows OEM sales to PC manufacturers and a 62% increase in Xbox content and services sales, of which 61% was the net effect of Microsoft's acquisition of Activision Blizzard in October. Thing.
PC demand for the quarter was slightly higher than expected, resulting in an 11% increase in Windows license sales to device manufacturers.
Notably, the Productivity and Business Processes segment, which hosts Office software, LinkedIn, and more, reported a 12% increase in revenue to $19.57 billion. This is the first quarter of sales for the Copilot add-on, which Microsoft has invested billions of dollars in developing.
The outlook for the fourth quarter was less impressive.
Microsoft said it expects revenue for the current quarter to be between $63.5 billion and $64.5 billion. Hood predicted a significant increase in capital spending from cloud infrastructure both this quarter and the new fiscal year starting July 1.
Boosted by Coca-Cola.
This week, Microsoft announced a five-year, $1.1 billion deal with Coca-Cola. The Coca-Cola Company will leverage Microsoft's technology expertise to accelerate system-wide AI transformation across its network of global businesses and independent bottlers.
AI is key to Microsoft's future, and that means its cloud business will take center stage.
Azure is growing faster than any other business, generating tens of billions of dollars in revenue every quarter. The cloud, along with the AI services included in its package, is also Microsoft's biggest tool in its competition with Amazon and Amazon Web Services. But this is just the beginning of that story, and a whole new era is about to be created, so Amazon and Microsoft aren't the only ones vying for the AI throne.
Disclaimer: This content is for informational purposes only. It is not intended as investment advice.
This article was contributed by an unpaid external contributor. This does not represent Benzinga's reporting and has not been edited for content or accuracy.
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This article reports that Microsoft beat estimates for its overall business, but suggests near-term capacity challenges.
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