Microsoft Beats Expectations in Q2 Earnings

Microsoft (MSFT) reported robust second-quarter earnings on Tuesday, surpassing expectations both in revenue and adjusted earnings per share. The company disclosed adjusted earnings per share of $2.93 on revenue amounting to $62 billion, outperforming estimates of $2.78 on $61.1 billion. Despite the positive results, Microsoft’s shares experienced a 1% dip following the announcement.

Crucially, the tech giant’s cloud revenue, a key metric, reached $33.7 billion, exceeding estimates of $32.2 billion. The Intelligent Cloud business, which includes the Azure service, posted $25.8 billion, surpassing expectations of $25.3 billion. Microsoft highlighted that AI services contributed 6 percentage points to the growth of Azure revenue, doubling from the previous quarter.

Microsoft CEO Satya Nadella emphasised the company’s transition from discussing AI to applying it at scale, contributing to new customer acquisition and driving benefits and productivity gains across various sectors.

Over the last 12 months, Microsoft has been a major beneficiary of the AI trend, with its shares surging by 50%, pushing its market capitalisation over $3 trillion. As of Tuesday afternoon, Microsoft held the position of the world’s wealthiest company by market cap, surpassing longtime rival Apple.

On the productivity side, Microsoft’s Productivity and Business Processes revenue reached $19.25 billion, slightly ahead of the $19.03 billion estimates. The More Personal Computing business, covering sales of Windows software and the Xbox gaming division, generated $16.89 billion.

Microsoft’s AI initiatives have become integral to its business strategy, with monetisation efforts including generative AI cloud services, Copilot for Microsoft 365 productivity platform, and Copilot Pro for consumers. The company recently opened up Copilot for Microsoft 365 to all businesses, eliminating the previous requirement of a minimum of 300 employees for sign-up.

While Microsoft and rivals Google and Amazon have invested significantly in AI over the past year, the sector faces challenges. Generative AI technology, in particular, has come under scrutiny due to issues like the generation of explicit images of celebrities, prompting calls for legislation against deepfake content.

Despite controversies, the momentum in AI technology remains strong, with companies continuing to announce new products and advancements in the field. Microsoft’s focus on AI growth and its ability to integrate the technology across its diverse portfolio positions it as a key player in the ongoing AI revolution throughout 2024.