Microsoft beats revenue expectations and invests a further €30bn in AI

Microsoft beat forecasts on both sales and profit in the last quarter, posting $77.7 billion (€6.62bn) in revenue and $30.8bn (€26.52bn) in income.

The firm nonetheless surprised some investors by the scale of its spending on cloud and AI infrastructure, sending shares down more than 3% after hours. Microsoft's results also came as the company's Azure services recovered from an outage on Wednesday.

The tech giant said it spent nearly $35bn (€30.13bn) in the July to September quarter on capital expenditures to support AI and cloud demand. Nearly half of that was allocated to computer chips and much of the rest was related to data centre real estate.

The spending overshadowed Microsoft’s report of a 22% increase in quarterly profit to $30.8bn (€26.52bn), or $4.13 per share.

Microsoft said those results excluded the impacts of money it invested in OpenAI — an attempt to “help clarify” how those losses affected Microsoft’s core business.

Microsoft was expected to earn $3.67 per share on revenue of $75.38bn (€64.90bn), according to analysts surveyed by FactSet Research.

The results came a day after a new deal with OpenAI pushed Microsoft to a $4 trillion (€3.44tn) valuation for the second time this year.

But shares in Microsoft then dropped in the hours before it disclosed its earnings on Wednesday as the company battled the outage affecting its Azure cloud computing platform. They dropped further — by more than 3% — in after-hours trading on Wednesday as investors considered the significance of the earnings report.

Driving investor enthusiasm on Tuesday was the announcement of Microsoft’s revised business deal with its longtime partner OpenAI, maker of ChatGPT and now the world’s most valuable start-up.

While no longer OpenAI’s exclusive cloud provider, a relationship that helped bankroll the start-up’s early growth, Microsoft will retain commercial rights to OpenAI products through 2032 and get a roughly 27% stake in OpenAI’s new for-profit arm.

Microsoft also said on Wednesday that it has already invested $11.6bn (€9.99bn) of the total $13bn (€11.19bn) it has committed to OpenAI.

Microsoft’s valuation previously passed $4 trillion (€3.44tn) in July, making it the second company after Nvidia to reach the milestone.

Microsoft again and Apple for the first time crossed $4tn (€3.44tn) this week, while Nvidia went on to achieve a different milestone: the first $5tn (€4.31tn) company.

The sky-high valuations highlight the investor frenzy around artificial intelligence, which some fear could turn into a bust if AI products aren’t as transformative or profitable as promised.

Quarterly revenue from Microsoft’s cloud-focused business segment was $30.9bn (€26.60bn), up 28% from the same time last year and just slightly above what analysts were expecting.

Revenue from Microsoft’s workplace software, which includes its email and word-processing tools, was up 17% to $33bn (€28.41bn).

Microsoft’s recent focus has centred around pitching its flagship AI assistant Copilot to help with a variety of work tasks, and last week gave it a new animated avatar exterior called Mico.