It’s a good day for Microsoft CEO Satya Nadella, as the tech giant reported earnings that beat analysts’ expectations. Stephen Brashear—Getty Images
AI hype has devoured the business world – and driven some consumers to AI fatigue – but Wall Street is still obsessed with the technology and eager to know what it will mean for companies’ bottom lines.
The topic of AI dominated Microsoft’s call with investors and analysts after the tech giant and OpenAI investor stellar profits published Tuesday. Of the eight analysts executives responded to, six asked about AI, the company’s Copilot AI product, or how AI is shaping the company as a whole. This curiosity is not a surprise. For all the noise about AI, few earnings reports have yet quantified the power of the technology.
In an October 18 report to Wolfe Research clients on Microsoft – ahead of the company’s latest results – analyst Alex Zukin cautioned against putting too much emphasis on AI without the numbers to support the company’s claims that the technology is transformative. “While last quarter we were all busy revising upward our estimates for how big Copilot could be, it appears that investors have since stumbled and fallen into the trough of AI disillusionment, calling into question question both actual functionality, cost effectiveness and ultimately sustainable and sustainable competitive advantage. “, wrote Zukin, as MarketWatch reported.
Microsoft’s earnings report Tuesday was one of the first in which analysts could begin to see the business implications of full-fledged AI adoption.
In the most recent quarter, which ended September 30, Microsoft beat analysts’ expectations across the board. It generated $56.5 billion in revenue, $2 billion more than the consensus estimate. Adjusted earnings per share came in at $2.99, compared to an expected $2.66. Since this time last year, just before OpenAI launched ChatGPT and sparked the AI frenzy, Microsoft’s profits are up 27%. The company’s shares rose 6.2% after hours, costing $350.90 per share at its peak.
Microsoft’s growth over the past quarter came from the business unit the company calls “Azure and other cloud services,” which houses its AI investments. Of the segment’s 29% year-over-year growth, 3 points came from AI services, driven by “higher than expected AI consumption,” CFO Amy Hood said at the call. “While trends from previous quarters continued, growth was better than expected, primarily driven by increased GPU capacity and better-than-expected GPU utilization of our AI services,” he said. Hood said, referring to computer technology called graphics processing units (GPUs) that render images. and are essential in AI. More than 18,000 organizations use Azure AI services, which include text-to-speech and facial recognition capabilities, added CEO Satya Nadella.
During the quarter, Microsoft announced the integration of its AI-powered Copilot assistant to its roster of office tools, including web browsers, Windows 11 desktop software, and Microsoft 365 apps. The company launched Bing Chat, also powered by AI, these month as a new way to search the Internet. Copilot in 365 for Business will roll out on November 1st.
Three analysts asked executives about the impact of AI on Microsoft’s margins and other growth indicators in the future. Jefferies’ Brent Thill put it simply: “Can you sustain double-digit growth, especially with AI ramping up more heavily in the coming quarters?” Hood responded: “We are satisfied with our ability to execute. »
“Together with Co-Pilots, we are making the AI era a reality for individuals and businesses around the world,” Nadella said in the earnings release. “We are rapidly infusing AI into every layer of the technology stack and for every role and business process to drive productivity gains for our customers. »