Growth fueled by artificial intelligence (AI)

Microsoft's recent investments in AI technology helped boost sales for the "September" quarter, particularly in its core cloud division. As a result, sales from the company's "intelligent cloud" business grew a marked 19% from the previous quarter to $24.3 billion.   These figures really surprised even analysts, whose consensus was beaten by as much as 13% to reach $21.94 billion.

During the quarter, Microsoft also announced a new multi-billion-dollar investment in OpenAI and said it will draw on the company's artificial intelligence models for a new version of its Bing search engine and enhancements to its Microsoft 365 productivity software.

Collaborations with OpenAI, Siemens

Commenting on the plans with AI technology, Microsoft's finance chief Amy Hood said "We will continue to invest in our cloud infrastructure, particularly AI-related spending, as we adapt to growing demand driven by customer transformation. And we expect the resulting revenue to grow over time."

Microsoft also announced a joint project with Siemens that will use artificial intelligence to boost productivity for enterprise customers. Under the Siemens Industrial Copilot scheme, the two companies will collaborate on the use of generative AI for industry, manufacturing, transportation and healthcare. The project will create so-called AI 'copilots' who will assist company employees in designing new products and organising production and maintenance.

Productivity and Business Processes segment

The Productivity and Business Processes segment, comprising Dynamics, LinkedIn and Office, reported revenue of $17.52 billion, an increase of approximately 11% and above the analyst consensus of $17.05 billion. Microsoft said the growth in revenue per user helped the company achieve 14% higher revenue from commercial Office 365 subscriptions within its Productivity segment.

Communications app Teams saw more than 300 million monthly active users in the third quarter, up from 280 million in the year-ago quarter.

"More Personal Computing" segment

This segment, which includes Bing, Windows, Surface and Xbox, brought in $13.26 billion in revenue for the company, down 9% but again above the analyst consensus of $12.25 billion. The Bing browser currently enjoys more than 100 million daily active users, and gaming subscription revenue was close to $1 billion. Sales of Windows operating system licenses to device makers fell by about 28%, with higher inventory levels hurting results. Although research firm Gartner estimated that PC shipments were down 30%, demand for PCs was slightly better than Microsoft's management expected.

Microsoft's share price evolution over the last 5 years. (Source: Tradingview.com)*

Conclusion

For the third quarter, Microsoft saw growth across most segments of its business. The exception was Windows operating system license sales, which declined by approximately 28%. However, the cloud segment has become the main driver of growth for Microsoft due to the integration of advanced artificial intelligence (AI) technologies. This is why the company's management plans to continue to focus on this segment, which is in high demand, and is strengthening existing and establishing new collaborations with key players such as OpenAI and Siemens.

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results

Sources:

https://www.microsoft.com/en-us/investor/earnings/fy-2023-q4/press-release-webcast

https://www.cnbc.com/2023/04/25/microsoft-msft-q3-earnings-report-2023.html

https://www.microsoft.com/en-us/Investor/segment-information.aspx