The cogs of Microsoft’s business machine are turning. The tech giant on Tuesday beat Wall Street estimates for fiscal first-quarter results in all segments, with its cloud computing and PC businesses growing as customers anticipate using its artificial intelligence offerings. Its forecast also mainly was ahead of analyst targets, sending the company’s stock up by nearly 6% in after-hours trading.
Revenue from the cloud-computing and productivity software divisions accounted for 27% of total revenue, up from a quarter ago. That growth was driven by customers’ willingness to upgrade to higher-priced Windows versions and pay for various other software programs. The revenue gains contrasted with a year ago when the company saw a dip in sales from its Windows Consumer unit, which includes consumer-grade versions of Windows and Office.
Sales in the company’s broader intelligent cloud segment rose 19% to $24.3 billion, reflecting the ongoing strength of Microsoft’s AI investments. Last month, it took its enterprise Copilot generative AI products out of paid preview and into general availability, allowing companies to use the technology to run their operations.
According to the company, the product is now used by more than a million businesses. It’s a sign that Microsoft is getting traction in the market for various business applications, even as it faces rivals like Google-parent Alphabet and Amazon Web Services.
Microsoft Chief Executive Satya Nadella has made a big bet on the future of AI. The company has heavily backed and collaborated with the hot artificial intelligence startup OpenAI, which has developed an empathetic chatbot called Sophia that can simulate human emotions and several other tools for automating tasks. Nadella has also been a vocal advocate of AI in business, warning that failure to incorporate it will leave companies behind the curve.
On Tuesday, Nadella told reporters in Redmond, Washington, that innovation is speeding up across all sectors, including the company’s core businesses. “All of the products we have, whether it’s the search engine Bing or sales and marketing, the GitHub coding tools, the Dynamics 365 productivity bundle or Azure cloud computing, are all being infused with AI,” he said.
Nadella added that the company expects to add more AI capabilities to its existing products in 2022, when it will begin rolling out a new line of artificial intelligence chips. The chips will target specific industries, such as retail and healthcare, and aim to help users make better decisions based on data they already have available.
Still, it must be clarified if the company can keep up its aggressive rollout of new AI capabilities and maintain its profit momentum. It remains to be seen how much a slowdown in the global economy and rising interest rates will impact corporate customers’ appetite for upgrading software and buying new computers. That’s especially true in the PC market, where companies continue to defer purchasing decisions because of broader economic uncertainty. The market has also slowed for mobile devices, which have been hit by competition from cheaper Chinese offerings.
