Microsoft reported better-than-expected earnings on Wednesday, driven by growth in its Azure cloud business, as five “Magnificent Seven“Tech megacaps report quarterly earnings this week.
“AI-driven transformation is transforming work, work artifacts and workflow in every role, function and business process,” said the company’s CEO Satya Nadella in a press release. “We’re expanding our capabilities and winning new customers as we help them apply our AI platforms and tools to drive new growth and operational leverage.”
All eyes were on Azure, Microsoft’s fastest-growing division, which has received billions of dollars in investment as the company focuses on artificial intelligence. According to the press release, the division’s revenues increased by 22%. A day earlier, Google parent Alphabet said its cloud business grew nearly 35% year-over-year to $11.35 billion, beating analysts’ estimates.
Shares rose after hours. The company reported earnings of $3.30 per share, versus the consensus estimate of $3.10 per share, on revenue of $65.59 billion, compared to the consensus estimate of $64.51 billion.
As it has invested in AI, Microsoft’s financial spending has increased significantly. On Wednesday, its finance leases for data centers — mostly loans to pay over time for new assets — totaled more than $108 billion in leases that have not yet begun.
Growing alongside its ballooning investments, Microsoft’s demand for electricity has soared in recent years. The company is trying to restart Three Mile IslandThe Pennsylvania nuclear power plant famous for the partial collapse of one of its reactors in 1979 as part of a project to power the tech giant’s massive fleet of data centers. Three Mile Island produced electricity until 2019, when it was shut down. Under the deal, Microsoft plans to buy all of the plant’s electricity production over the next 20 years.
But investors are becoming wary of big tech’s huge bet on AI and are hoping to get a clearer picture of when the bet will start to pay off. Between them, the seven companies — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — represent $12 trillion in market capitalization and a whopping one-fifth of the S&P 500, but the group has been lagging behind the market for the past three months. have decreased by 3.5% in total value since the beginning of July.
Wedbush analyst Dan Ives said in a note to investors that this was a “gut-checking quarter” for Microsoft and Azure amid growing competition in the AI ecosystem.
“Our checks for Microsoft this quarter were solid as we continue to believe that Redmond is in the driver’s seat and accelerating the flow of cloud deals for Azure with strong momentum through 2025 and beyond,” Ives wrote. referring to the location of Microsoft’s headquarters in Washington state. . “We maintain our ‘outstanding’ rating.”