Microsoft earnings jump on AI demand

Software giant is spending billions of dollars to integrate AI into many of its products.

Microsoft is spending billions of dollars to meet the infrastructure demands of artificial intelligence. Picture: AFP

Microsoft’s profit rose last quarter as artificial intelligence bolstered demand for its software and cloud services, prompting the company to spend billions on infrastructure needed to accommodate the booming appetite for the hot technology.

The tech giant’s revenue increased 17 per cent from a year earlier to $US61.9bn ($94.8bn), beating analysts’ estimates. Its net income grew 20 per cent to $21.9bn.

Microsoft has been among the bigger winners in the AI race thanks to its close relationship with ChatGPT maker OpenAI. The company has woven the start-up’s technology into an array of products called Copilot, which are AI assistants that plug into key offerings like its workplace software suite, Microsoft 365.

Artificial intelligence is also boosting demand for its cloud services. Microsoft’s Azure cloud services rose 31 per cent during the quarter.

Microsoft said that 7 percentage points of the Azure growth came from its AI services, up from 6 percentage points the previous quarter.

Microsoft is hoping that Copilot will become a major contributor of new revenue to its software business. Some analysts believe it could end up adding billions to the company’s top line.

“They have been a leader in AI,” said Gil Luria, a software analyst at D.A. Davidson. “They’re really the only ones that can put their finger on actual AI revenue.”

Microsoft shares rose 5 per cent in after-hours trading Thursday.

Early users of Copilot, which was released last year, have lauded the assistant for its ability to transcribe meetings done online with Microsoft’s Teams software. Other areas, like creating spreadsheets and writing emails, have been less successful, some customers said.

Microsoft is making more money as customers use AI software hosted on its cloud. Microsoft’s cloud hosts ChatGPT, software made by start-ups like Mistral and Cohere, and models made by tech giants like Meta.

The Redmond, Washington company has been ramping up its spending on data centres and other infrastructure to host the rising AI demand. That spending has sent some of Microsoft’s capital expenditures soaring.

Microsoft said its capital expenditures were $14bn last quarter, a marked increase from the $11.5bn the company spent the preceding quarter.

On a conference call after earnings were announced, chief financial officer Amy Hood said that the company will continue to increase spending.

She said the customer demand for AI services is beyond what Microsoft is able to provide, pushing the company to pour more money into building its infrastructure.

Microsoft projects revenues of between $63.5bn and $64.5bn in the quarter through June.

Microsoft’s AI success has helped push its market value above $3 trillion this year. It has surpassed Apple’s, making it the world’s biggest company by that measure.

Over the past 12 months, its stock has climbed 45 per cent, while the Nasdaq Composite Index rose 32 per cent and Apple shares gained 4 per cent.