Microsoft (MSFT) reported its quarterly earnings on Tuesday, October 24, 2023, after the closing bell, beating analysts’ expectations on revenue and earnings per share. The tech giant announced revenue of $56.5 billion in the quarter, above consensus estimates of $54.5 billion. Adjusted earnings per share (EPS) topped out at $2.99 compared to an anticipated $2.66 per share. The company saw adjusted EPS of $2.35 during the same quarter last year.
AI-Driven Growth in Cloud and Productivity Segments
One of the main drivers of Microsoft’s impressive performance was its Intelligent Cloud segment, which includes its Azure business, the leading cloud platform for artificial intelligence (AI) and machine learning (ML) applications. The segment reported revenue of $24.3 billion, up 20% year-over-year, and beating Wall Street’s expectations of $23.6 billion.
Microsoft has made AI a cornerstone of its business over the last year, announcing a massive $10 billion investment in ChatGPT developer OpenAI and unveiling generative AI-enhanced versions of its Bing search engine and Edge browser in February. Since then, the company has launched various generative AI-powered Copilot apps for Outlook, Windows 11, and Microsoft 365. The software can summarize emails, help you draft documents and create PowerPoint presentations, and provide insight into Windows 11 features. Microsoft says it will combine the Copilots into a single app in the future.
The investments are meant to help spark a new growth cycle for Microsoft, as customers look to artificial intelligence as a means of streamlining certain business processes and improving employee efficiency.
The company’s Productivity & Business Processes segment also benefited from its AI initiatives, as it reported revenue of $18.6 billion, up 12% year-over-year, and surpassing analysts’ projections of $18.3 billion. The segment includes popular products such as Office 365, Dynamics 365, LinkedIn, and Skype, all of which have integrated AI features to enhance user experience and productivity.
Gaming and Personal Computing Segments Also Shine
Microsoft’s More Personal Computing segment, which includes its Windows, Devices, Gaming, and Search businesses, also delivered strong results, with revenue of $13.7 billion, up 4% year-over-year, and beating analysts’ forecasts of $12.9 billion.
The gaming business was a standout performer in the segment, as it reported revenue of $4.1 billion, up 16% year-over-year, driven by the launch of several new titles and the continued popularity of its Xbox Game Pass subscription service. The company also closed its $69-billion acquisition of Activision Blizzard earlier this month, making it the third-largest video game company in the world by revenue behind Tencent and Sony.
The devices business also saw robust growth, with revenue of $2.8 billion, up 12% year-over-year, fueled by the demand for its Surface laptops and tablets, which run on Windows 11 operating system. The company said that Windows 11 adoption has been faster than any previous version of Windows.
The search business also posted solid results, with revenue of $8.2 billion, up 7% year-over-year, as Bing’s market share increased to 12% in the U.S., thanks to its generative AI-powered features that provide more relevant and personalized results for users.
Stock Reaction and Outlook
Microsoft’s stock jumped more than 5% in after-hours trading on Tuesday following the earnings release, reaching a new all-time high of nearly $350 per share. The stock has gained 38% year-to-date, outperforming the S&P 500 index which has risen 22% in the same period.
The company also provided an upbeat outlook for the next quarter, expecting revenue to be between $58.5 billion and $59.5 billion, above analysts’ estimates of $57.9 billion. The company said it expects to see continued momentum in its cloud and productivity segments, as well as strong holiday sales in its gaming and devices segments.