Microsoft (MSFT) Q3 2024 Earnings

Microsoft shares rose as much as 5% in extended trading Thursday after the software maker posted fiscal third-quarter results that beat Wall Street expectations.

Here’s how the company fared compared to the LSEG consensus:

• Earnings per share: $2.94 vs $2.82 expected
• Income: $61.86 vs. $60.80 billion expected

Microsoft’s total revenue rose 17% year over year in the quarter ended March 31, according to a statement. Net income of $21.94 billion, or $2.94 per share, was up from $18.30 billion, or $2.45 per share, in the year-ago quarter.

In terms of guidance, Microsoft CFO Amy Hood called for $64 billion in revenue for the fiscal fourth quarter, below the LSEG consensus of $64.5 billion. Hood’s forecast suggests an operating margin of 42.3%, ahead of the StreetAccount consensus of 41.5%.

“Currently, the short-term demand for AI is slightly higher than our available capacity,” Hood said. Microsoft is ramping up capital spending to protect itself Nvidia GPUs for training and managing artificial intelligence models.

In the third fiscal quarter, Microsoft’s Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance and GitHub, generated $26.71 billion in revenue. That was about 21% more than the $26.26 billion consensus among analysts polled by StreetAccount.

Revenue from Azure and other cloud services grew 31%, compared with 30% in the prior quarter. Analysts polled by CNBC had expected 28.8%, while StreetAccount’s consensus was 28.6%.

Within Azure growth, 7 percentage points were related to AI, up from 6 impact points in the previous quarter. Microsoft provides cloud services for the ChatGPT chatbot from startup OpenAI, and companies are increasingly adopting Azure AI services to develop their own information summarization and document authoring capabilities.

The capacity bottleneck has hampered the AI ​​portion of Azure’s growth, Hood said.

Microsoft’s GitHub Copilot code generation tool now has 1.8 million paid subscribers, CEO Satya Nadella said on a conference call with analysts.

The Productivity and Business Process division, which includes Office productivity software, LinkedIn, customer relationship management software Dynamics, generated revenue of $19.57 billion, up about 12%. The StreetAccount consensus was $19.54 billion. This marks the first full quarter of sales for the Copilot add-on for commercial subscriptions to Microsoft 365. Copilot is based on AI models from OpenAI, in which Microsoft has invested billions.

Amgen is among the customers who have signed up for 10,000 Copilot seats, Nadella said.

Microsoft’s revenue from more PCs totaled $15.58 billion. Revenue from the segment, which includes the Windows operating system, Surface PCs, video games and search, rose roughly 18% and was above the StreetAccount consensus of $15.08 billion. Xbox content and services revenue rose 62%, boosted by its $75 billion acquisition in October of game publisher Activision Blizzard, including its popular Call of Duty titles.

Windows license sales to device makers jumped 11%. Technology industry researcher Gartner estimated that PC shipments rose 0.9% in the quarter. Demand for PCs is “a little better than expected,” Hood said.

During the quarter, Microsoft introduced the Surface PC with a key for quick access to the Copilot chatbot. The company began selling access to Copilot for small businesses with subscriptions to Microsoft 365 productivity software and hired Mustafa Suleyman, co-founder of artificial intelligence lab DeepMind, to lead Microsoft’s new artificial intelligence group. Suleiman was the co-founder and CEO of the startup Inflection, and many of its employees also joined Microsoft.

“We operate with speed and intensity, and this infusion of new talent will allow us to accelerate our pace again,” Nadella wrote in a note about the Inflection deal, which was it is reported worth $650 million.

Excluding the after-hours move, Microsoft shares are up 6% this year, in line with the S&P 500.