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AI Lifts Microsoft to Highest-Ever Earnings Results, Fueled by AI

AI Lifts Microsoft to Highest-Ever Earnings Results, Fueled by AI

The News: Microsoft announced Q4 earnings, and the standout was the impact of AI across the portfolio. The full earnings press release is available on the Microsoft website.

By the Numbers:

  • Earnings: $2.69 per share, versus $2.55 per share as estimated by Refinitiv, up 21%
  • Revenue: $56.19 billion, versus $55.47 billion as estimated by Refinitiv
  • Operating income was $24.3 billion and increased 18% (up 21% in constant currency)
  • Net income was $20.1 billion and increased 20% (up 23% in constant currency)

AI Lifts Microsoft to Highest-Ever Earning Results, Fueled by AI

Analyst Take: Microsoft, the 48-year-old tech behemoth, recently announced its most robust financial quarter to date, buoyed by the transformative power of AI. The company’s exceptional performance across several key metrics underscores the significant impact of AI on its operations and overall growth.

Microsoft’s fiscal Q4 earnings report revealed impressive profits and revenues that surpassed Wall Street’s estimates. However, the decline in Azure cloud revenue growth by one percentage point from the previous quarter overshadowed the positive results, leading to a 4% drop in Microsoft’s shares during after-hours trading. The sequential decline in Azure growth has been a consistent trend since Q3 2022, raising concerns among investors as companies cut back on capital expenses due to rising interest rates. Microsoft’s management did not offer a clear guide on whether the decline had bottomed. Still, CEO Satya Nadella emphasized the early stages of cloud migration and the potential of AI driving new workloads, expressing confidence in sustained high growth for the business. Despite the dip in Azure revenue growth, Microsoft’s overall revenue rose by 8% to $56.2 billion, and net income increased by 20% to $20.1 billion for the quarter. The Productivity and Business Processes segment performed well, with a 10% revenue increase, while the Intelligent Cloud revenue, led by Azure, grew by 15% to $24 billion. However, the fiscal year 2023 saw Microsoft’s lowest annual growth rate (7%) since 2017. These figures indicate that while Microsoft remains a leading player in the tech industry, attention remains on its cloud services and AI-driven innovations to sustain growth in an evolving market.

AI Fuels Growth Now and in The Longer Term

Integrating AI into Microsoft’s portfolio has been a game-changer, driving unprecedented progress and innovation. AI has profoundly impacted Microsoft’s cloud computing and AI-driven solutions, with the Azure cloud platform experiencing growth of 28%. By leveraging AI-driven insights, Microsoft’s customers make data-driven decisions, optimizing processes for greater efficiency.

Microsoft’s success with AI-driven applications and Copilot options for Dynamics, Teams, and Microsoft 365 have resonated with consumers, enhancing productivity and user experience. Beyond end-user products, Microsoft’s AI initiatives extend to the enterprise and industrial sectors, empowering businesses with intelligent systems for data analysis and decision-making. We believe the $30 per user per month pricing, which was higher than expected, is interesting going forward as it shows a clear path for monetizing Microsoft’s AI investments.

Microsoft’s dedication to AI research and development has led to strategic partnerships and groundbreaking applications. As reflected in its strongest financial quarter, AI continues to drive growth and prosperity for Microsoft, solidifying its position as a global leader in the digital age. With a commitment to harnessing AI’s potential, Microsoft looks to a future of continued innovation and transformation.

We are still early with the integration of AI into Microsoft’s portfolio, and I remain bullish that we will continue to see an upward trajectory as the results of Microsoft’s endeavors to pervasively integrate AI start to pay off.

Microsoft Azure

The only slight negative in what was a standout quarter was a slowdown in the revenue growth of Azure to only 26% YoY growth. Microsoft’s Azure growth has been experiencing sequential quarterly declines since at least Q3 2022, prompting investor concerns amidst an environment of increasing interest rates and company cost-cutting measures. During a recent call with investors, Microsoft projected a modest 25% to 26% growth for the current quarter but refrained from offering clear guidance on whether the decline in Azure revenue growth had hit its lowest point. Nadella acknowledged that the cloud migration process is still in its early stages and emphasized the potential of AI to drive new workloads, expressing optimism about the business’ potential for sustained high growth in the future. Our colleague Keith Kirkpatrick covered the recent Accelerate, Innovate, and Move (AIM) incentive program announcement as we believe it is a pragmatic step to facilitate the migration of on-premises customers to the cloud. As Azure’s performance remains in the spotlight, Microsoft’s ability to navigate the evolving cloud landscape will be closely watched by investors.

Looking Ahead

As Microsoft’s strongest financial quarter reflects, the age of AI has ushered in a new era of growth and prosperity for the company. With AI as a driving force, Microsoft continues to shape the technological landscape, reimagining possibilities, and preserving its position as a global leader in the digital age. As AI continues to evolve, Microsoft’s dedication to harnessing its potential ensures a promising future of innovation, transformation, and continued success.

While the Azure decline raised concerns, Nadella expressed confidence in sustained high growth, citing the early stages of cloud migration and AI’s potential to drive new workloads. Microsoft’s commitment to AI research and development positions the company in a leadership role, with a promising future of continued innovation and transformation. However, analysts and investors are closely watching Azure’s performance amid rising interest rates and cost-cutting measures.

The Futurum Group Chief Analyst, Daniel Newman, joined Caroline Hyde to weigh in on earnings results from Microsoft, as well as the overall market for artificial intelligence technology. He speaks on “Bloomberg Technology.” (Source: Bloomberg)

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

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Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.

Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.

Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.

Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.

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