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Microsoft reported quarterly profits jumped by almost a quarter, buoyed by strong demand for AI services in its cloud division, but the group’s spending on its data centres surged 66 per cent.
The software giant on Wednesday reported its adjusted net income rose 23 per cent year on year to $30.9bn in the three months to December, beating analysts’ expectations for $28.9bn.
Revenue increased 17 per cent to $81.3bn, exceeding estimates of $80.3bn.
“We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises,” said chief executive Satya Nadella.
The $3.6tn software group is locked in an expensive race with rival cloud operators including Google and Amazon to build out the infrastructure needed to run advanced AI.
Capital expenditure, including finance leases, was $37.5bn in the quarter, an increase from $34.9bn in the prior three months and compared with $22.6bn in the same period last year. The company said about two-thirds of the spending was on shortlived assets such as GPU and CPU chips to support its core data centre business.
Previously, Microsoft had forecast almost $140bn of capex this fiscal year, which ends in June.
Sales at Microsoft’s closely watched cloud division, which has seen a surge in AI-related income and includes its Azure computing platform, rose 26 per cent from a year ago to $51.5bn.
“Microsoft Cloud revenue crossed $50bn this quarter, reflecting the strong demand for our portfolio of services,” said chief financial officer Amy Hood.
Shares of the Redmond, Washington-based group fell 5.6 per cent in after-hours trading.
On a non-adjusted basis, net income rose 60 per cent to $38.5bn due to a $7.6bn accounting gain on its investment in OpenAI, reflecting an increased amount of cash on the start-up’s balance sheet after multiple large fundraisings.
Microsoft holds a 27 per cent stake in the AI model builder after it restructured into a more traditional for-profit enterprise from a non-profit in October.
This is a developing story
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