Microsoft has reported strong quarterly growth in its cloud-computing business, indicating that its heavy investment in artificial intelligence is paying off.
Revenue from the tech giant's Azure cloud business – which is a key part of its AI offering – rose 33% in the September quarter, beating analysts' expectations.
The Redmond, Washington, company's total revenue rose 16% to $65.6 billion, while its net income rose 11% to $24.7 billion. Analysts were expecting revenue of $64.57 billion and net income of $23.15 billion.
Excitement about the potential of generative AI that can create computer code and summarize complex information has helped boost shares of Microsoft and other tech companies through 2023.
Alphabet shares rose on Wednesday after Google parent Tuesday announced strong results at its cloud-computing division, another beneficiary of the AI boom.
Microsoft, and the tech industry more broadly, is spending massively on its AI, building data centers to power it around the world.
CEO Satya Nadella has bet Microsoft's future on AI. The company has invested about $14 billion in ChatGPT maker OpenAI and is pouring cash into the expensive chips and data centers needed for the technology.
The company has said that it plans to increase its spending in line with the perceived demand. It has cut costs in other areas such as hardware to avoid taking a big hit on profit margins.
Most of Microsoft's AI revenue has come through its cloud services. The company has added this technology to its best-selling software such as Microsoft 365 and its Bing search engine.
Microsoft's revenue from its AI software products is small. It's not holding back on sales of Copilot, the AI assistant it markets to customers and costs $30 per person. While it's still a relatively new product – it was only widely released last year – investors are hoping the company will start sharing more information about demand.
“There's been a bit of a disappointment with Office CoPilot in terms of promise and pricing,” said Rishi Jaluria, an analyst at RBC Capital. “The product is not necessary.”
As of the close of regular trading on Wednesday, Microsoft shares were up less than 15% so far this year. The tech-heavy Nasdaq Composite Index rose more than 20% over the same period.
Write to Tom Dotan at [email protected]