Microsoft beat Wall Street’s expectations in its fiscal second quarter 2024 earnings report, fueled by strong growth in its cloud computing and artificial intelligence segments.
Shares of Microsoft rose over 4% in after-hours trading as the tech giant once again showed its ability to leverage cutting-edge technology like AI to drive financial performance.
Cloud Revenue Growth Remains Strong
Microsoft CEO Satya Nadella highlighted the ongoing momentum of the company’s cloud business, anchored by Azure, to open his earnings call remarks. He stated that “Azure again took [market] share this quarter with our AI advantage.”
The Azure cloud platform saw revenue grow by 20% in the quarter, slightly below the 24% growth rate in the previous quarter but still robust. Microsoft has rapidly expanded Azure into one of the top cloud infrastructure providers, trailing only Amazon Web Services in market share.
Nadella noted that Azure AI now has over 53,000 customers, a third of which are new in the past year. Azure AI offers advanced capabilities like AI model training and supports the latest accelerators from partners AMD and Nvidia.
Microsoft’s Intelligent Cloud segment, which includes Azure and other cloud services, generated $25.9 billion in revenue, representing a 20% increase for the quarter ended December 31, 2023.
AI Infusion Across Microsoft’s Products
A key part of Microsoft’s strategy, as described by Nadella on the call, is “moving from talking about AI to applying AI at scale.” He highlighted how Microsoft is actively infusing AI across its entire technology stack.
The fruits of Microsoft’s substantial investments into AI research and development over the past decade are now emerging in various products. From Azure AI services to Office 365 enhancements, AI is enhancing capabilities anddriving new customer wins.
Major companies already using Microsoft’s AI tools range from Ally Financial to Coca-Cola. Nadella compared the rise of AI to how personal computers transformed workflows, signaling his expectation of a broad AI adoption cycle playing out.
OpenAI Partnership Delivers Results
Microsoft’s multi-billion dollar partnership with AI startup OpenAI proved one of the biggest drivers of its Q2 outperformance. OpenAI powers ChatGPT and other cutting-edge AI systems running on top of Azure cloud infrastructure.
Nadella singled out Azure OpenAI and OpenAI’s API as major growth contributors this quarter. Microsoft CFO Amy Hood quantified that AI services added 6 percentage points to Azure’s revenue growth in the period.
The OpenAI collaboration has faced recent antitrust scrutiny, but Microsoft opted not to address regulatory concerns during its earnings presentation. For now, the partnership is providing tangible boosts to Microsoft’s cloud and AI businesses.
Strong Commercial Business Segments
Beyond AI and the cloud, Microsoft saw solid growth across its core commercial and productivity segments like Office 365 Commercial and Dynamics 365. LinkedIn revenue grew 9%, GitHub revenue was up 40%, and Surface sales grew 30%.
Meanwhile, increase in the consumer-facing Windows OEM and Xbox businesses, up 11% and 61% respectively, were more than offset by enterprise strength.
For the current fiscal third quarter, Microsoft issued revenue guidance of $50.5 billion to $51.5 billion, reflecting confidence in sustaining momentum even amid a cloudy macroeconomic picture. Productivity, cloud computing, and AI remain resilient growth drivers for Microsoft in 2024 and beyond.
With its enterprise focus and cutting-edge innovation, Microsoft is positioned to continue gaining share in the $200 billion cloud market and emerging AI landscape. The latest quarterly beat highlights Microsoft’s progress in strategically transforming itself into an AI-first company.
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Financial Performance Constant Currency Reconciliation
| Three Months Ended December 31, | ||||
|---|---|---|---|---|
| ($ in millions, except per share amounts) | Revenue | Operating Income | Net Income | Diluted Earnings per Share |
| 2022 As Reported (GAAP) | $52,747 | $20,399 | $16,425 | $2.20 |
| 2022 As Adjusted (non-GAAP) | $52,747 | $21,570 | $17,371 | $2.32 |
| 2023 As Reported (GAAP) | $62,020 | $27,032 | $21,870 | $2.93 |
| Percentage Change Y/Y (GAAP) | 18% | 33% | 33% | 33% |
| Percentage Change Y/Y (non-GAAP) | 18% | 25% | 26% | 26% |
| Constant Currency Impact | $756 | $565 | $510 | $0.07 |
| Percentage Change Y/Y Constant Currency | 16% | 30% | 30% | 30% |
| Percentage Change Y/Y (non-GAAP) Constant Currency | 16% | 23% | 23% | 23% |
Segment Revenue Constant Currency Reconciliation
| Three Months Ended December 31, | |||
|---|---|---|---|
| ($ in millions) | Productivity and Business Processes | Intelligent Cloud | More Personal Computing |
| 2022 As Reported (GAAP) | $17,002 | $21,508 | $14,237 |
| 2023 As Reported (GAAP) | $19,249 | $25,880 | $16,891 |
| Percentage Change Y/Y (GAAP) | 13% | 20% | 19% |
| Constant Currency Impact | $230 | $367 | $159 |
| Percentage Change Y/Y Constant Currency | 12% | 19% | 18% |
Selected Product and Service Revenue Constant Currency Reconciliation
| Three Months Ended December 31, 2023 | Percentage Change Y/Y (GAAP) | Constant Currency Impact | Percentage Change Y/Y Constant Currency |
|---|---|---|---|
| Microsoft Cloud | 24% | (2)% | 22% |
| Office Commercial products and cloud services | 15% | (2)% | 13% |
| Office 365 Commercial | 17% | (1)% | 16% |
| Office Consumer products and cloud services | 5% | (1)% | 4% |
| 9% | (1)% | 8% | |
| Dynamics products and cloud services | 21% | (2)% | 19% |
| Dynamics 365 | 27% | (3)% | 24% |
| Server products and cloud services | 22% | (2)% | 20% |
| Azure and other cloud services | 30% | (2)% | 28% |
| Windows | 9% | 0% | 9% |
| Windows OEM | 11% | 0% | 11% |
| Windows Commercial products and cloud services | 9% | (2)% | 7% |
| Devices | (9)% | (1)% | (10)% |
| Xbox content and services | 61% | (1)% | 60% |
| Search and news advertising excluding traffic acquisition costs | 8% | (1)% | 7% |