Microsoft Reports 16% Quarterly Sales Growth Amid AI Spending Questions

Microsoft recently announced that its quarterly sales increased by 16% to $65.6 billion, as the company aimed to reassure investors about its significant investments in artificial intelligence (AI). The tech giant has allocated billions of dollars to enhance its global network of data centers and physical infrastructure vital for developing advanced AI technology that can assist with tasks such as document creation, image generation, and functioning as a realistic personal assistant in both work and home settings.

According to CEO Satya Nadella, these efforts are projected to lead AI-related products to contribute approximately $10 billion to the company's annual revenue, marking the fastest progression for a business segment in Microsoft’s history to achieve this milestone. This information was shared during a call with analysts on Wednesday.

In terms of profitability, Microsoft reported an 11% increase in quarterly profit, reaching $24.7 billion, which translates to $3.30 per share. This figure exceeded Wall Street’s expectations for the period between July and September. Analysts from FactSet Research had anticipated earnings of $3.10 per share, based on a revenue estimate of $64.6 billion.

While Microsoft has not yet released specific revenue figures for its AI products, it noted that it has integrated AI technology, particularly its AI assistant known as Copilot, across all business segments, with a strong focus on Azure cloud computing contracts.

Among the various segments, the productivity division, encompassing Microsoft’s suite of Office products, led in sales growth for the quarter with a 12% rise to $28.3 billion. Additionally, the company’s cloud segment experienced substantial growth, advancing by 20% year-over-year to reach $24.1 billion during the quarter ending September 30.

Furthermore, Microsoft's personal computing segment, heavily influenced by its Windows division, grew by 17% to $13.2 billion. A significant portion of this growth can be attributed to Microsoft’s Xbox video game division, which benefitted from the acquisition of the game publishing giant Activision Blizzard a year ago.

In a move to address increasing competition from other major tech firms, Microsoft, along with computer manufacturers using its Windows operating system, unveiled a new line of laptops featuring integrated AI capabilities.

However, building and maintaining AI systems requires significant investment. Microsoft reported expenses of $20 billion during the quarter, primarily for cloud computing and AI-related needs. This included the construction of energy-intensive computing centers and the provision of specialized chips necessary for training and operating AI models.

Additionally, Microsoft has made substantial investments in AI startups, especially its partner OpenAI, the creator of ChatGPT and the foundational chatbot technology that powers Microsoft’s own Copilot.

CEO Satya Nadella stressed the company’s commitment to integrating AI platforms into workplace environments as AI technologies continue to reshape job roles and tasks. As he enters his tenth year in this role, it was noted that Nadella’s annual compensation increased by 63% this year, totaling $79 million. This comes despite his decision to reduce his cash incentive in light of his accountability for cybersecurity incidents.

Earlier this year, a concerning report from a federal review board highlighted a series of security failures at Microsoft, which allowed Chinese state-backed hackers to infiltrate email accounts belonging to high-ranking U.S. officials.

Microsoft, AI, Revenue