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Microsoft's Cloud Soars But Profit Worries Cast a Shadow Over Stellar Quarter

Word on the StreetWednesday, Oct 30, 2024 8:00 pm ET

1min read

On Wednesday, Microsoft reported first-quarter fiscal earnings that surpassed Wall Street expectations, driven primarily by robust growth in its Azure cloud infrastructure business. However, concerns over future performance led to a decline in its stock price despite initial gains post-announcement.

For the quarter ending September 30, Microsoft's earnings per share stood at $3.30, exceeding the forecasted $3.10. Revenue reached $65.59 billion, surpassing the anticipated $64.51 billion and marking a 16% year-over-year increase. The net income rose to $24.67 billion, showcasing substantial growth from the previous year's $22.29 billion.

Microsoft's intelligent cloud segment, which includes Azure, Windows Server, and enterprise services, contributed $24.09 billion to this figure, a 20% increase from last year. Notably, Azure and related cloud services experienced a 33% growth driven significantly by the demand for artificial intelligence integrations.

The company's cloud business, while outperforming expectations in the past quarter, also displayed warning signs. Microsoft anticipated further slowing in Azure’s growth in upcoming quarters, primarily attributed to heavy AI-driven expenditure impacting profit margins. While the current growth of AI-enhanced services provided an immediate boost, this optimism was tempered by the potential for deceleration.

Despite these forecasts, Microsoft remains bullish on its AI strategy, underscored by a significant partnership with BlackRock to establish an AI infrastructure investment fund aimed at raising $30 billion. Investments in real estate and equipment surged by 50% to $14.92 billion this quarter, reflecting this focus on future capabilities.

This quarter's capital expenditures highlight the company’s continued commitment to extending cloud and AI capabilities, even with concerns about future profitability. As Microsoft moves forward, sustained investment in AI infrastructure could see these strategies pay off long-term. Such measures have historically allowed Microsoft to maintain its position as a leader in tech innovation.

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