Microsoft profits jump 33% to $22 billion as its AI services boom – but shares fall slightly

Microsoft beat Wall Street estimates for its second quearter – as new AI features helped attract customers.

The company has invested billions of dollars into artificial intelligence – making it a leader ahead of Apple, Google and Amazon.

The company has said it won’t see big profits form that investment – which includes a stake in OpenAI, the start up behind the ChatGPT chatbot. 

But there are signs of a return already with profits and revenue up 33 percent and 18 percent respectively on the same October to December quarter in 2023. 

In November, Microsoft started selling Copilot, an AI assistant that can summarize an email inbox or craft a slide show, for $30 per month.

Analysts say the price for CoPilot is ‘premium’ – but it seems to be selling. Early sales of the product showed up in the firm’s commercial sales of Office software, where revenue grew 17 percent.

Overall, Microsoft’s revenue grewto $62 billion in the quarter from October to December compared with the average analyst estimate of $61.12 billion. 

Profits hit $21.9 billion, up 33 percent. 

Shares fell around one percent in after hours trading. They climbed 57 per cent last year. Along with a rally in other tech stocks, including Alphabet and Nvidia, Microsoft helped fuel a 24 per cent surge in the S&P 500 in 2023.

Revenue at Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, grew 20 per cent to $25.9 billion.

Microsoft has multiple ways of making money – a far cry from the 1980s and 1990s when it relied on Windows. 

 Now, it pulls in cash from Xbox video games, cloud computing via its Azure service, a subcription for Windows and Office – plus it is a leader in AI. 

Investors are watching Microsoft’s Azure and Office revenues closely to see what kind of sales flow come from the tens of billions of dollars the company plans to pour into data centers this year to deliver generative AI.

Shares had hit an all time high last week – pushing its market value above $3 trillion. 

Analysts had expected Microsoft to boost revenue by 16 percent from a year earlier. 

Jefferies analysts raised their target on Microsoft shares to $465 from $450 in a note on Sunday.

Microsoft shares have risen about 9 percent so far in 2024, while the S&P 500 index has gained 3 percent over that stretch.

 Last week, Microsoft said it was cutting around 1,900 of 22,000 jobs in its gaming division, mostly from Activsion Blizzard – which it bought in October for $69 billion – but also within its Xbox team.  

In October  Microsoft’s LinkedIn subsidiary cut 700 jobs – on top of 10,000 earlier in 2023.