Microsoft (MSFT) is a current holding within the momentum component of the US Growth portfolio, and has reported a strong first-quarter performance, with sales and profit surpassing expectations due to robust corporate demand for its cloud and artificial intelligence (AI) products.
For the quarter ending March 31, revenue soared by 17% to $61.9 billion, with earnings per share reaching $2.94, outperforming the analyst consensus of $2.83 per share on sales of $60.9 billion. Following the announcement, shares rose 4.29% in after-hours trading.
Under the leadership of CEO Satya Nadella, Microsoft has integrated AI technology from its partner OpenAI across its product range, a move that is proving fruitful. This strategy has encouraged customers to adopt AI-enhanced tools and Azure cloud subscriptions that incorporate OpenAI technologies. Azure, Microsoft’s flagship cloud service, reported a 31% revenue increase this quarter, slightly accelerating from the previous period’s 30% growth. AI contributions to this growth have been steadily increasing, adding a significant competitive edge to Azure’s offerings.
The company anticipates Azure’s growth to remain robust, forecasting a 30% to 31% increase in the coming quarter, topping the expected 29%. For the fiscal year starting July 1, Microsoft projects a growth of over 10% in both sales and operating income.
Significantly, more than 65% of Fortune 500 companies are now using Azure OpenAI, showcasing strong market adoption of Microsoft’s AI capabilities. The commercial cloud segment also saw a 23% revenue increase to $35.1 billion, with commercial bookings surging by 29%.
In addition to its core cloud and AI operations, Microsoft is expanding its data centre infrastructure to meet the growing demand for AI services, with capital expenditures reaching $14 billion this quarter. This expansion is essential as the demand for AI services slightly exceeds the current data centre capacity.
On the product front, Microsoft recently launched Microsoft 365 Copilot, an AI assistant for Office programs, which is priced at an additional $30 per month for large customers. This initiative, which now extends to smaller firms and a consumer version priced at $20, is set to become a significant recurring revenue stream.
As Microsoft continues to innovate and expand its AI and cloud services, the company is well-positioned to maintain its lead in the technology sector. MSFT remains an active buy/hold recommendation within the US Growth portfolio.
