Microsoft’s cloud computing business had a surprisingly strong quarter despite pressure from the slowing U.S. economy, the company said on Tuesday.
Revenue for the first three months of the year rose 7 percent year-on-year to $52.9 billion and profit rose 9 percent to $18.3 billion. Both exceeded Wall Street expectations.
Microsoft’s cloud business — which includes Azure, its cloud computing product and its Microsoft 365 platform — had revenue of $28.5 billion, up 22 percent year-over-year.
Azure sales, a key result watched by investors, rose 27 percent, in line with investor expectations. However, that was down from a 46 percent increase a year earlier. Overall, the segment, which the company calls intelligent cloud, rose 16 percent year over year, which was better than expected.
Microsoft’s cloud products are “certainly a very important driver for us going forward,” said James Ambrose, Microsoft’s director of investor relations.
Microsoft shares are up more than 8 percent in after-hours trading.
Microsoft, like many other tech companies, has been hampered by the sluggish economy after experiencing significant growth during the pandemic. The company announced in January that it would lay off 10,000 employees.
The company’s Windows business has plummeted as the global PC sales market slowed. Revenue from Microsoft’s personal computing segment was $13.3 billion last quarter, down 9 percent from a year earlier. Within this category, revenue from Windows OEMs — initial installations of Windows software on new computers — fell 28 percent and revenue from devices fell 30 percent.
Revenue from Microsoft’s video game segment, its main consumer business, fell 4 percent year over year as Xbox hardware sales fell 30 percent.
Still, Microsoft’s stock has remained strong, buoyed in part by the company’s foray into the booming artificial intelligence space.
Mr Ambrose warned that the strong numbers are not necessarily indicative of an improving macro environment. “I don’t know if this signals a big shift in our view of the economy,” he said.
Speaking to investors, Microsoft’s chief financial officer Amy Hood said revenue growth in the current quarter could be flat compared to an unusually strong quarter a year ago.
Microsoft is also poised to capitalize on the AI boom through its investment in OpenAI, the startup behind chatbot ChatGPT. It has already integrated ChatGPT into its Bing search engine, and the company has announced that it will integrate AI into other Microsoft products as well.
Though the company said it was too early for the futuristic technology to impact its quarterly financials, Satya Nadella, its CEO, said “AI” or “OpenAI” at least 24 times in his 15-minute introduction while speaking to investors.
“We have the most powerful AI infrastructure,” Mr Nadella said at one point, mentioning a variety of companies already using Microsoft’s AI tools in their businesses. To support high demand for its AI products, the company said it will invest in expanding this infrastructure.
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