The cloud division helps Microsoft revenue and profit exceed expectations, capital expenditure lower than last quarter, after-hours rise of over 9% | Earnings Report Insights
The financial report shows that Microsoft's quarterly revenue and profit both exceeded expectations, with total revenue growing by 13% to reach $70.1 billion, and adjusted earnings per share of $3.46. Azure cloud business revenue grew by 33%, surpassing expectations, partly due to a new cloud service commitment made with OpenAI. Microsoft's capital expenditures, including leases, were lower than the previous quarter for the first time in over two years in the third fiscal quarter. The post-market surge has resulted in a positive year-to-date stock price increase for Microsoft
On Wednesday after the U.S. stock market closed, Microsoft Corporation reported sales and profits that exceeded expectations, driven by the expansion of its cloud division, indicating that customer demand has not been affected by tariffs and broader economic uncertainties.
Dan Morgan, Senior Portfolio Manager at Synovus Trust, commented on Microsoft's earnings report, stating that as a large software company, Microsoft "has not been as affected as other tech companies" and has "exceeded expectations across all major metrics."
Microsoft's stock price closed at $395.26 on Wednesday, rising more than 9% in after-hours trading. As of Wednesday's close, the company's stock price has fallen about 6% year-to-date due to broader market sell-offs, but considering the surge in after-hours trading, Microsoft's year-to-date stock price increase has turned positive.
(1) Key Financial Data
Revenue: Microsoft's revenue for the third fiscal quarter was $70.07 billion, a year-on-year increase of 13%, compared to the expected $68.48 billion.
Earnings per Share: The adjusted earnings per share were $3.46. Analysts had previously expected $3.21, while the same period last year was $2.94.
Net Profit: Net profit increased by 18% from $21.9 billion in the same period last year to $25.8 billion.
(2) Segment Business Data
Cloud-related:
Cloud revenue for the third fiscal quarter was $42.4 billion, with analysts expecting $42.22 billion.
The "Intelligent Cloud" segment, including Azure cloud services, generated revenue of $26.75 billion, growing approximately 21%, exceeding analysts' expectations of $26.16 billion.
Among them, Azure and other cloud revenue (excluding currency factors) grew by 33% in the third fiscal quarter, while Wall Street expected a growth of 29%.
Azure's growth in the third fiscal quarter contributed 16 percentage points to the artificial intelligence (AI) business, with analysts expecting 15.6 percentage points, compared to 13 percentage points in the previous quarter.
In the earnings call, Microsoft's Chief Financial Officer Amy Hood stated that Azure's revenue, adjusted for currency fluctuations, is expected to grow by up to 35% this quarter, which also exceeded analysts' expectations.
Productivity and Business Processes Division:
Microsoft's "Productivity and Business Processes" division (including Office software subscriptions and LinkedIn) achieved revenue of $29.94 billion, a year-on-year increase of 10%, surpassing analysts' expectations of $29.57 billion
Microsoft is working hard to persuade customers to upgrade to more expensive software versions to use its latest artificial intelligence features. Investor Relations Director Jonathan Neilson stated that these upgrades help the company generate higher revenue per user.
"More Personal Computing" Segment:
The "More Personal Computing" segment (including Windows, search advertising, devices, and gaming consoles) generated revenue of $13.37 billion, a year-on-year increase of 6%, exceeding analysts' expectations of $12.66 billion. Microsoft directly engages in hardware business through its Xbox gaming consoles and Surface laptops.
Capital Expenditure
Similar to Amazon and Google's parent company Alphabet, Microsoft is accelerating the construction of data centers to meet the growing demand for generative AI training and tools. However, in recent months, the company has slowed down some construction projects, sparking discussions among investors—whether this is due to financial prudence or reflects a long-term weakening of demand for cloud computing and AI.
Microsoft continued to invest heavily in infrastructure to support AI workloads during the quarter. Quarterly capital expenditure (excluding finance leases) reached $16.75 billion, an increase of nearly 53%, compared to analysts' previous estimate of $16.37 billion. Capital expenditure for the third fiscal quarter, including leases, was $21.4 billion, marking the first time in over two years that it fell below the previous quarter, reflecting a reduction in data center investments. These investments are aimed at driving growth in Microsoft's cloud computing business.
During the conference call, Microsoft's Chief Financial Officer Hood stated that capital expenditure will continue to grow in the new fiscal year starting in July, although the growth rate will slow down. Microsoft's data center capacity shortage will last longer than previously expected, unable to meet the demand for AI.
Microsoft and OpenAI
As the world's largest software company, Microsoft is considered to be at the forefront of AI product commercialization due to its close partnership with OpenAI, the developer of ChatGPT. In addition to providing computing infrastructure, Microsoft has also launched AI assistants in applications such as Office and Excel.
For the quarter ending March 31, Microsoft announced adjustments to its relationship with major AI partner OpenAI. Microsoft stated that when OpenAI needs additional computing capacity, the company has a priority purchasing right, but it is not always required to provide it. On the same day, OpenAI announced an AI infrastructure project called "Stargate" with Oracle and SoftBank at the White House.
Microsoft also stated that this quarter it recorded $623 million in "other expenses," including losses recognized from equity method investments (such as OpenAI). In the previous quarter, this expense was $2.29 billion
Trump Administration Policies
Recently, the U.S. government's policy changes from tariffs to cuts in federal spending have left corporate executives and investors feeling uneasy. Although tariffs have a relatively small direct impact on software companies, they may weaken customer demand and raise overall economic costs.
Despite the Trump administration's efforts to reduce federal agencies' spending on external technology, currently focused on consulting firms like Accenture and Booz Allen, investors are concerned that these measures may ultimately also affect software vendors such as Microsoft and ServiceNow
