Microsoft Growth Jumps as Azure Unit Thrives.

"Microsoft's sales growth accelerated last quarter as demand for its cloud computing services heated up amid growing enthusiasm about artificial intelligence.

The company reported Tuesday that its revenue grew by 13% to $56.5 billion for the quarter through September. That was above analysts' expectations and a step up from growth of 11% during the year-earlier period.

The growth rate in Microsoft's Azure cloud business was 29%. While that was below the pace that Microsoft posted in the same quarter last year, it was above the preceding quarter and analyst expectations. It gained around 3 percentage points from demand for AI services.

Microsoft is one of the first technology titans to report quarterly results. Like many in tech, it has been managing a sharp slowdown and reducing staff and other costs after years of high growth when the pandemic shifted work and life shifted online.

For the current quarter through December, the company projected revenue of between $60.4 billion and $61.4 billion, above analysts' expectations of $58.67 billion, according to FactSet.

Microsoft shares climbed 4% in after-hours trading.

The company's net income rose 27% to $22.3 billion, an acceleration from a year earlier and above Wall Street's predictions.

The Redmond, Wash., company has been a leader in AI. Microsoft executives have been fanning excitement about artificial intelligence, thanks largely to the cultural phenomenon ChatGPT, OpenAI's chatbot.

"We are using this AI inflection point to redefine our role," said Satya Nadella, Microsoft's chief executive after the results Tuesday.

Microsoft has invested billions into OpenAI and incorporated the startup's technology across its line of products, including its workplace software suite Microsoft 365 and search engine Bing.

Microsoft's investment in AI was reflected in its capital expenditures, which jumped 70% from a year earlier to $11.2 billion.

The excitement around AI may also be boosting spending on cloud computing businesses like Microsoft's Azure, which hosts software from companies like OpenAI and Meta Platforms. While it is still a small business for Microsoft, analysts and investors expect it to start contributing to the company's bottom line in a much larger way in the future.

Next month, the company will roll out the AI-powered assistant for Microsoft 365 called Copilot. It is charging businesses $30 a person to access Copilot, more than double the least expensive version of the software.

Investor enthusiasm about Microsoft's ability to capitalize on this AI trend has powered the company's stock, which has risen more than 35% this year, outperforming a Nasdaq Composite Index rally of around 25%.

Still, this has been a challenging year for Microsoft. The company has undergone a series of layoffs, including a round in January that cut 10,000 employees. 

Earlier this month, Microsoft laid off around 300 employees from its LinkedIn division.

This month, Microsoft completed its acquisition of videogame studio Activision Blizzard. The $75 billion deal, which makes hit games such as "Call of Duty," was struck in 2021 and then beset by legal challenges from regulators in the U.S. and U.K. Over the summer, Microsoft prevailed in court against the Federal Trade Commission, which tried to block the deal. Microsoft finally won approval in the U.K. after agreeing to license out the streaming rights to Activision's games to an outside company.

Adding Activision's revenue to Microsoft's gaming unit would make its gaming business around 10% of its overall business. The gaming company's earnings won't be folded in to Microsoft's until the current quarter.

Customer demand for Microsoft's operating system and other software has cooled. Sales of personal computers, which took off during the pandemic, have slipped in recent quarters.

Microsoft's device business, which includes Surface computers, fell 22% for the quarter." [1]

1. Microsoft Growth Jumps as Azure Unit Thrives. Dotan, Tom.  Wall Street Journal, Eastern edition; New York, N.Y.. 25 Oct 2023: B.1.