Microsoft (MSFT) reported its fiscal third-quarter earnings on Thursday, beating analysts' estimates for the strength of its cloud computing business.
“Microsoft Copilot and Copilot Stack are orchestrating a new era of AI transformation, driving better business outcomes in every role and industry,” Microsoft CEO Satya Nadella said in a statement.
Microsoft said its AI services contributed 7 percentage points to growth in revenue for Azure and other cloud services. This represents an increase from 6 percentage points in the second quarter, and 3 percentage points in the first quarter. Microsoft first announced its AI percentage contributions to Azure in the fourth quarter of last year, saying it added one percentage point to Azure revenue in that time.
The company also said it expects fourth-quarter revenue to range between $63.5 billion and $64.5 billion, exceeding analysts' expectations of $64.7 billion.
Microsoft CFO Amy Hood said during the company's earnings call that the tech giant sees near-term demand for artificial intelligence outpacing available capacity.
Microsoft shares jumped 5% after this announcement.
Microsoft reported earnings per share (EPS) of $2.94 and revenue of $61.9 billion. Wall Street had expected earnings per share of $2.83 on revenue of $60.88 billion, according to analyst estimates compiled by Bloomberg.
Microsoft's commercial cloud revenue totaled $35.1 billion, beating Wall Street estimates of $33.93 billion. On a segment basis, Microsoft saw productivity and business operations revenue of $19.57 billion, beating expectations of $19.54 billion. Intelligent Cloud and More Personal Computing revenues were $26.71 billion and $15.58 billion, respectively. That was better than analysts' expectations of $26.25 billion and $15.07 billion, respectively.
The revenue increase in More Personal Computing was driven by 11% growth in Windows OEM sales to PC manufacturers and 62% growth in sales of Xbox content and services with 61% attributable to the net impact of Microsoft's acquisition of Activision Blizzard.
Microsoft shares are up more than 10% year to date, behind competitors like Google parent Alphabet (GOOG, GOOGL) and Amazon (AMZN), which are up 15% and 22%, respectively. Over the past 12 months, Microsoft shares have risen 32%, although Amazon has jumped 67%, while Google shares have risen 47%.
The three companies are competing to see which can deliver the most comprehensive AI solutions to enterprise and consumer customers, whether that means making huge investments in outside companies like OpenAI and Anthropic or reorganizing their internal teams like Google's.
Microsoft's AI ambitions got a boost on Tuesday when it announced that The Coca-Cola Company (KO) had signed a five-year, $1.1 billion agreement to use Azure cloud services and the software giant's AI technology.
“Through our long-standing partnership, we have made significant progress to accelerate system-level AI transformation across The Coca-Cola Company and its network of independent bottlers around the world,” Judson Althoff, Microsoft executive vice president and chief commercial officer, said in a statement.
Microsoft has unleashed a torrent of new AI features and services for enterprise applications, productivity and consumer platforms since it first launched its revamped version of Bing and its chatbot in February 2023.
in March, Microsoft announced her appointment DeepMind AI and Inflection AI co-founder Mustafa Suleiman, and fellow Inflection AI co-founder Karen Simonyan, as well as a number of the company's employees. Suleiman takes on a new role at Microsoft as CEO of Microsoft's AI division.
In February, Microsoft announced a multi-year partnership with French AI startup Mistral that would allow Microsoft to deliver the company's models on its Azure platform.
Email Daniel Hawley at dhowley@yahoofinance.com. Follow him on Twitter at @Daniel Holly.
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