Microsoft Corp.’s third-quarter profit and sales surpassed projections, fueled by resilient corporate demand for its mainstay cloud-computing software and services. Shares jumped 5% in late trading.
Profit was $2.45 a share in the period ended in March, and sales rose 7.1% to $52.9 billion, the software maker said in a statement Tuesday. That compared with analysts’ average estimate for $2.24 a share in earnings and $51 billion in revenue, according to a Bloomberg survey.
In Microsoft’s closely watched Azure cloud-computing business, revenue climbed 31% excluding the impact of currency fluctuations, matching predictions. Sales from commercial cloud products like Azure and Office productivity software rose 22% to $28.5 billion, the company said.
Azure demand was fueled by deal renewals and, in an improvement from the previous quarter, Microsoft was better able to convince customers to add new products to their contracts when they re-signed, Chief Financial Officer Amy Hood said in an interview. That included security software and Teams conferencing software, she said.
Though total sales growth has decelerated to single digits after five years of more robust gains, Microsoft’s products like Azure and Office 365 cloud-based offerings continued to attract customers even as many scaled back spending in a shaky economy. To help weather the broader slowdown, Microsoft fired 10,000 workers this year, including in key businesses like Azure and security software.
“A solid report on a low-bar quarter,” said Dan Morgan, senior portfolio manager at Synovus Trust Co., noting that the company’s tepid projections in January for this quarter had tamped down expectations.
The Redmond, Washington-based company has also kept clients’ attention as Chief Executive Officer Satya Nadella turned to massive bets in artificial intelligence, including a reported $10 billion of new investment into OpenAI and a new Bing internet search chatbot — a strategy to juice future sales of Azure, search ads and office-productivity programs.
The company’s shares jumped as high as $291.30 in extended trading following the report, after closing at $275.42 in New York. The stock gained 20% in the quarter on optimism for Microsoft’s new AI plans and products, compared with a 7% rise in the Standard & Poor’s 500 Index.
Microsoft’s biggest moves during the recent quarter came in the artificial intelligence space, an area that currently draws some customers to Azure yet remains more of a bet on future capabilities. The company used its investment and partnership with OpenAI to introduce an overhauled version of its Bing search enhanced with AI chat, seeking to mount a real challenge to market leader Google. Any gains in the search business could generate billions in future revenue, Microsoft told analysts when it unveiled the product. The company has also retooled its Office, accounting and security software to add AI features.
AI products were introduced recently, and aren’t yet adding much to sales, but the company is seeing promising initial signs in terms of usage and customer demand, Hood said. She added that Nadella would provide more detail on a call with analysts later Tuesday.
Even though the overall PC market is plunging, parts of Microsoft’s More Personal Computing unit — including Windows for commercial PCs, video games and advertising — performed better than the company had forecast, Hood said. The unit’s sales were $13.3 billion, down 9% from a year earlier but higher than the $12.2 billion average estimate of analysts polled by Bloomberg.
“This environment continues to be dynamic,” Hood said. “We remain focused on controlling what we can control with strong executive and continue to invest for the long term.”
Microsoft is also awaiting clearance for its $69 billion acquisition of Activision Blizzard Inc., with U.S. regulators challenging the deal in court and UK antitrust officials set to release an update this week on their requirements for Microsoft to address competition concerns.
Azure, which competes with Amazon and Alphabet Inc.’s Google, has been Microsoft’s highest-profile business for years, viewed as its strongest growth engine and the basis for its restoration to the ranks of technology giants over the past decade.
Now, even with the burgeoning AI business attracting more investor attention, that fanfare will keep the focus on Azure results in the coming quarters. Microsoft sells many of its AI services through Azure — and integrating these products, as well as OpenAI’s systems, involves intense usage of Azure computing power.