Microsoft shares rise over 3% as Azure tops $100B in annual revenue

Microsoft shares surged more than 3% in after hours trading Wednesday after the company reported stronger than expected quarterly revenue and accelerating growth across its Azure cloud business.

The stock rose as much as 4% following the results as investors welcomed signs that Microsoft’s massive investment in artificial intelligence infrastructure was translating into faster cloud growth.

Microsoft generated $90 billion in revenue during its fiscal fourth quarter, an increase of 18% from $76.4 billion a year earlier. The result exceeded Wall Street expectations of roughly $87.7 billion.

Operating income increased 18% to $40.6 billion, while net income rose 31% to $35.8 billion.

Diluted earnings reached $4.81 per share on a reported basis. Excluding the effect of Microsoft’s OpenAI investments, earnings were $4.74 per share, above analysts’ expectations of $4.24.

The quarter also included a $3.2 billion gain from Microsoft’s investment in Anthropic, along with lower than expected expenses related to its voluntary retirement program. Those benefits were partly offset by severance expenses and impairment charges connected to Xbox.

Azure and other cloud services revenue increased 43%, exceeding the roughly 40% growth expected by analysts and accelerating from 40% in the previous quarter.

Microsoft CEO Satya Nadella said Azure revenue surpassed $100 billion for the first time during the fiscal year. Microsoft 365 Copilot also reached more than 30 million paid seats, up from 20 million in the previous quarter and above analyst expectations of around 26.9 million.

Microsoft Cloud revenue increased 27% to $59.3 billion, while the company’s commercial remaining performance obligation rose 84% to $678 billion.

The backlog increased from $627 billion during the previous quarter. Microsoft said the sequential growth came from commitments outside the leading US AI model developers, suggesting that demand is expanding beyond a small group of major customers.

Microsoft’s quarterly capital spending more than doubled to $35.8 billion from $17.1 billion a year earlier as the company expanded the infrastructure supporting Azure and its AI products. Full year spending on property and equipment reached $115.9 billion, up from $64.6 billion.

Revenue from Microsoft’s Intelligent Cloud division climbed 32% to $39.3 billion, supported by Azure demand and increased adoption of AI services.

Productivity and Business Processes revenue rose 14% to $37.8 billion. Microsoft 365 Commercial cloud revenue increased 14%, Microsoft 365 Consumer cloud revenue rose 24%, and LinkedIn revenue grew 12%.

More Personal Computing revenue declined 4% to $12.9 billion. Windows OEM and Devices revenue dropped 7%, while Xbox content and services revenue fell 10%.

Search advertising revenue excluding traffic acquisition costs increased 10%.

Microsoft continued to spend heavily on the infrastructure required to support its cloud and AI businesses.

Additions to property and equipment reached $35.8 billion during the quarter, more than double the $17.1 billion recorded a year earlier. Total capital expenditures including assets acquired through finance leases reached about $41 billion, according to Reuters.

The spending represented an increase of more than 70% from a year earlier but came in below market expectations of approximately $42.4 billion.

The combination of lower than expected spending and faster Azure growth helped ease concerns that Microsoft’s AI infrastructure investments were expanding faster than the revenue generated by those assets.

For the full fiscal year, Microsoft reported revenue of $331.8 billion, up 18%. Operating income increased 21% to $155.2 billion, while net income rose 31% to $133.7 billion.

The company returned $10.2 billion to shareholders through dividends and share repurchases during the quarter.

Microsoft will provide its outlook for the new fiscal year during its earnings conference call, including further details on expected cloud growth, margins, and AI infrastructure spending.

Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.