Microsoft on Wednesday reported better-than-expected earnings driven by growth in its Azure cloud business, as five of the “Magnificent Seven” tech mega-caps report quarterly earnings this week.
“AI-driven transformation is changing work, work artifacts, and workflow across all roles, functions, and business processes,” the company’s CEO Satya Nadella said in a press release. In an earnings call, Nadella said Microsoft’s AI business was “on track to surpass a $10 billion annual run rate next quarter, making it the fastest-growing business in our history.” in reaching this milestone.
All eyes were on Azure, Microsoft’s fastest-growing division, which has received billions of dollars in investments as the company focuses its attention on artificial intelligence. The division’s revenue increased 22%, according to a news release. A day earlier, Google parent Alphabet reported that its cloud business grew almost 35% from a year earlier, to $11.35 billion, surpassing analyst estimates.
Nadella said Azure now had 39,000 customers, up 80% year over year. The company now had AI data centers in more than 60 regions around the world and usage of Azure-OpenAI had more than doubled in the past six months, he added.
Shares rose in after-hours trading. The company reported earnings of $3.30 per share, compared to the expected $3.10 per share, on revenue of $65.59 billion, compared to the expected $64.51 billion.
As it has invested in AI, Microsoft’s financial expenses have increased significantly. As of Wednesday, its data center financial leases (essentially loans to pay for new assets over time) exceed $108 billion for leases that have not yet begun.
In parallel with its growing investments, Microsoft’s demand for electricity has skyrocketed in recent years. The company is seeking to restart Three Mile Island, the nuclear power plant in Pennsylvania famous for a partial meltdown of one of its reactors in 1979, as part of a project to power the tech giant’s massive fleet of data centers. Three Mile Island produced power until 2019, when it was closed. Under the agreement, Microsoft plans to purchase all of the plant’s electricity production for the next 20 years.
But investors are increasingly cautious about Big Tech’s big bet on AI and are hoping to get a clearer idea of when the bet will start to pay off. Between them, the seven companies (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) represent $12 trillion in market capital and a whopping fifth of the S&P 500, but the group has lagged the market for the last three months. and together they have fallen 3.5% in value since the beginning of July.
Wedbush analyst Dan Ives said in a note to investors that this was a “review quarter” for Microsoft and Azure amid growing competition in the AI ecosystem.
“Our evidence for Microsoft has been strong this quarter as we continue to believe Redmond is in the driver’s seat and is accelerating the flow of cloud deals for Azure with strong momentum through 2025 and beyond,” Ives wrote, referring to the location of Microsoft’s headquarters in Washington state. . “We maintain our ‘outperform’ rating.”