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Last week, Microsoft (Nasdaq: MSFT) announced its first quarter results that surpassed market expectations. However, its stock dipped following a weak outlook.
Microsoft’s Financials
Microsoft’s first quarter revenues grew 16% to $65.6 billion, beating analyst estimates of $64.5 billion. EPS was $3.3, exceeding analyst estimate of $3.10.Microsoft’s Intelligent Cloud segment revenues grew 20% to $24.09 billion slightly more than the estimate of $24.04 billion. Azure revenues grew 33%, above the estimated 29.4%. Revenues from the Productivity and Business Processes unit, including Office productivity software, LinkedIn, and Dynamics, grew 12% to $28.32 billion, beating the Street’s forecast of $27.9 billion. Revenue from its More Personal Computing segment grew 17% to $13.2 billion, beating the analyst estimate of $12.56 billion. It has over 500 million monthly active users across platforms and devices. For the second quarter, Microsoft expects 10% growth or revenues of $68.1 -$69.1 billion while analysts expect $69.83 billion. Microsoft had indicated during the last two quarters that demand for AI services is outpacing supply. Supply constraints continue to limit growth in the GenAI-related businesses.It expects capacity to ramp up in the second half of the fiscal year.
Microsoft’s AI Offerings
During the recent call, Microsoft CEO Satya Nadella said that their AI business is on track to surpass an annual revenue run rate of $10 billion in the second quarter of fiscal 2025. Microsoft 365 Copilot has proven the fastest ramp of any 365 suite product with about 70% of F500 organizations having adopted the product.Azure AI provides access to AI models and an end-to-end app platform building customized copilots and agents. Azure OpenAI service provides access to best-in-class frontier models. Azure OpenAI usage more than doubled over the past 6 months as both digital natives like Grammarly and Harvey as well as established enterprises like Bajaj Finance, Hitachi, KT, and LG moved apps from test to production. GenAI contribution to the Azure business increased 12% during the quarter. Azure Arc, which helps in streamlining cloud migrations, has over 39,000 customers, up more than 80%. Its customers include American Tower, CTT, and L’Oréal. I have recently done a series of interviews with AI investors where I discuss the relevance of smaller models for vertical AI or specific use cases that can also address the hallucination issue. Early this year, Microsoft had introduced Phi-3, a family of cost-effective, open AI small language models (SLMs) models developed by Microsoft. It is being used by companies like BlackRock, Emirates, Epic, ITC, and Navy Federal Credit Union. Microsoft is taking the early lead in all aspects of the AI phenomenon and is one of the best positioned AI tech companies.The company’s stock is trading at $425.42 with a market capitalization of $3.16 trillion. It hit a 52-week high of $468.35 in early July. It hit a 52-week low of $360.36 in November last year.More By This Author:Meta’s Investment Outlook Keeps Growing
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