Microsoft reports stronger-than-expected earnings as it ramps up capital spending
Microsoft
- Microsoft's Q1 profits beat analysts' estimates as cloud computing continued to grow.
- Q1 capital spending reached $20 billion, up from $19 billion in Q4.
- Microsoft shares edged higher in after-hours trading.
Microsoft reported better-than-expected first-quarter results after the closing bell on Wednesday, and continued to ramp up its capital spending as it invests in AI capabilities.
Capex totaled $20 billion, compared with $19 billion in its fiscal fourth quarter and $14 billion in the quarter before that.
Much of the company's spending has been going toward data centers, graphics processing units, and other AI projects. By year end, Microsoft intends to amass 1.8 million GPUs. By July 2025, the Redmond, Washington, company plans to triple its data-center capacity. The company is trying to figure out how it will recoup this massive investment.
Also in the first quarter, Microsoft Cloud revenue rose 22% from a year earlier to $38.9 billion. Analysts, on average, had expected revenue for the business would total $38.11 billion, per Bloomberg.
Shares rose more than 1% in late trading.
Some analysts have been critical of the company's spending on artificial intelligence, as Business Insider previously reported.
"We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage," the company's chairman and CEO, Satya Nadella, said in the earnings announcement.
The report follows Microsoft's August announcement that it would reconfigure how it reported results from its business units. The Productivity and Business Processes segment includes results from Microsoft 365 Commercial products and cloud services.
Here are several key metrics for the quarter that ended September 30 and how they compared with analysts' consensus expectations as reported by Bloomberg.
- Earnings per share: $3.30 vs. $3.11 expected
- Revenue: $65.59 billion vs. $64.51 billion expected
- Operating income: $30.6 billion vs. the $29.21 billion expected
- Microsoft Cloud revenue: $38.9 billion vs. the $38.11 billion expected
Investors have been tracking spending on AI at many of the so-called Magnificant 7 stocks, of which Microsoft is one — along with fellow tech giants including Apple, Amazon, Google parent Alphabet, and Nvidia. One concern is that returns on companies' AI investments could fall short of expectations. That's a worry at Microsoft partly because feedback on the company's Copilot AI has been mixed.