Shares in Microsoft soared by over six percent in after-hours trading on Wednesday, following the announcement of the company's latest quarterly earnings that exceeded expectations, bolstered by its flourishing cloud and artificial intelligence (AI) line-ups.
For the quarter ending March, the tech behemoth reported a revenue of $70.1bn (£52.5bn), a boost of 13 percent compared to last year, while its net income surged to $25.8bn, an 18 percent increase, significantly outpacing analyst predictions, as reported by .
The results marked Microsoft's fourth consecutive earnings outperformance, strengthening investor trust in the firm's assertive AI initiatives and its dominance in the cloud market sector.
AI drives growth and expectations
Microsoft CEO Satya Nadella proclaimed that "cloud and AI are essential inputs for every business to expand output, reduce costs, and accelerate growth," with the financial results substantiating his statement.
Azure's revenues escalated by 33 percent from the previous year, with AI contributing to 16 percentage points of this upturn – slightly above initial forecasts.
Industry experts had projected a 15.6 percent rise due to AI-related progress.
Amidst the burgeoning AI market pull, Microsoft has made considerable investments—planning an $80bn outlay on capital expenditure for this fiscal year, primarily targeting enhancements in cloud infrastructure and AI capabilities.
Despite some recent holds on data centre projects, Microsoft acknowledged it is expanding its scale to keep pace with the swelling demand, especially concerning enterprise cloud migrations.
A robust cloud engine
Evidencing a robust performance, Microsoft disclosed that its commercial cloud revenue reached $42.2bn, recording a 20 percent uplift and surpassing estimates.
The company's performance across various sectors was robust. The productivity and business processes segment reported revenues of $29.8bn, while the intelligent cloud division achieved $26.8bn.
Investors and analysts are keeping a close eye on Azure as an indicator of wider AI adoption.
Microsoft's stronghold in the cloud market is positioning it as a significant contender in what could be a generational shift in platforms.
"With customers ranging from Coca-Cola to Abercrombie & Fitch accelerating their cloud journeys, Microsoft is capturing the benefits from that transition," observed Nadella.
Tariff tensions
However, geopolitics presents a growing challenge. Amid resurfacing concerns about Trump-era trade tariffs and warnings about their impact on tech, Microsoft is striving to reassure markets.
The company's vice chair and president have vowed to legally contest any attempts to halt its European cloud operations.
While rivals like Apple and Amazon are more exposed to trade-related volatility, Microsoft remains relatively shielded.
Nevertheless, the company's executives are proceeding with caution: Microsoft has discreetly cancelled some data centre leases and hinted at project slowdowns, citing "AI capacity constraints."
Despite short-term spending, investors remain optimistic. With a cash reserve of £78bn and a 10% dividend increase over the past year, Microsoft has the financial leeway to pursue long-term dominance in AI, even if it impacts short-term margins.
Experts at TD Cowen and eToro stressed the need to keep a close eye on trends in capital expenditure, the monetisation of AI, and the sustained growth momentum of Azure.
"Although the spending is high, it's what's needed to stay ahead", noted eToro analyst Josh Gilbert. "Microsoft's ability to generate high returns on capital and sustained revenue growth should help ease concerns."
For investors, the primary takeaway is that Microsoft is successfully translating its AI narrative into tangible revenue.
With Azure's growth gaining speed, AI capacity increasing, and cloud bookings remaining robust, the tech giant is well-positioned for success.
Despite looming concerns over tariffs and global economic pressures, Microsoft's bold investment strategy and early lead in AI suggest it may continue to be a stock worth monitoring.
