Microsoft's Earnings Report Ticked All The Right Boxes As It Continues To Fortify Its AI Leadership

When Microsoft Corporation MSFT entered in a multibillion relationship with OpenAI, it made quite a wager that AI will change the way we work. With its latest quarterly results, that wager seems to be paying off already as the tech giant is rapidly infusing AI across its offerings and consequently, business processes with the result of increased productivity. When it reported its previous quarter, Microsoft dropped a bunch of well-known companies using its AI services, such as Airbnb Inc ABNB and IKEA, this time it shed light on how its new tools are being used. Unlike Alphabet GOOGGOOGL-owned Google who reported a continued cloud slowdown, Microsoft ended its deceleration streak with Azure. But the latest results of both Google and Microsoft show that these tech titans made quite a comeback after what was a challenging year.

Fiscal First Quarter Highlights

For the quarter ended on September 30th, revenue grew almost 13% to YoY $50.12 billion. Due to a successful execution of initiatives to slowdown the growth of operating expenses, net income rose 27% YoY to $22.29 billion. Operating expenses grew at a slowest rate since 2016, at 1.3%.

Moreover, Azure cloud revenue growth rose 28%, accelerating from the previous quarter after two years of deceleration. On the other hand, its rival Google reported that Google Cloud’s revenue slowed down from previous quarter’s 28% to 22.5%. Google Cloud miss even overshadowed Alphabet’s better than expected earnings. The Intelligent Cloud division brought in revenue of $24.26 billion as it expanded 19%. 

The Productivity and Business Processes unit reported revenue rose 13% YoY to $18.59 billion. More Personal Computing segment that houses Windows, Xbox, Bing and Surface brought in revenue of $13.67 billion, implying a 3% rise. Microsoft also ended a streak of five quarters of YoY declines in Windows license sales. 

Microsoft reported it has 1 million paid Copilot users. It also noted strong demand for its cybersecurity offering, the Security Copilot. Its AI Copilot add-on will become widely available as of November 1st to summarize meetings and draft emails, at a monthly price of $30 in addition to its Office bundle. 

The Teams communication app added 20 more million monthly users on top of the 300 million Microsoft reported six months ago.

Microsoft Continues To Work On Fortifying Its "Game"

On October 13th, Microsoft finally completed its $68.7 billion acquisition of Activision Blizzard Inc ATVI. While its gaming hardware revenue declined, content, services and overall gaming revenues rose. Although Activision didn’t make part of fiscal first-quarter results, it will be part of earnings for the undergoing quarter and is therefore integrated in the positive outlook. With Activision expected boost Xbox sales and the contribution of AI, revenue for the fiscal second quarter is expected to grow 15% and come in the range between $60.4 billion and $61.4 billion.

Latest Results Confirm A Tech Turnaround

With their latest results, Google and Microsoft showed that they made quite a comeback. All in all, Microsoft checked all the right boxes with the cloud, AI development and gaming, beginning the new fiscal year on a strong note.

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