Microsoft shares climb after strong cloud growth and earnings beat

UPDATE - follow-up to Microsoft stock jumps 4% as cloud growth drives earnings and revenue beat: Microsoft shares rose 4% in extended trading on Wednesday after posting quarterly results that beat expectations, led by a 48% jump in Azure revenue.

Results and Segments

Total revenue grew 19% year over year for the period ending Sept. 30, with Azure now standing as the company's biggest single business. Microsoft disclosed Azure revenue in dollars for the first time at $33.17 billion, topping the $32.32 billion expected by analysts polled by StreetAccount and beating the 42% growth rate from the June quarter. The company reported earnings under two new segments: Agents and Infra, where revenue rose almost 25% to $76.8 billion to beat the $75.63 billion consensus, and Devices and Consumer, where revenue slipped 3% to $15.48 billion but still beat the $15.05 billion consensus. Sales of devices and Windows licenses dropped 22% due to weak PC demand, higher memory and storage costs, and the end of support for Windows 10.

Spending and AI

Net income rose to $36.63 billion, or $4.92 per share, up from $27.75 billion, or $3.72 per share, a year earlier, with adjusted earnings excluding a roughly $200 million loss on the OpenAI investment. Capital expenditures and finance leases reached $45.2 billion, up about 30% from a year ago but below the $50.67 billion projected by analysts. Around 75% of capital expenditures are tied to short-lived assets like Nvidia graphics processing units and Intel chips, up from half a year ago, showing a focus on fast revenue conversion. Free cash flow declined 27% to $18.63 billion, while cloud rival Alphabet reported more than $9 billion in negative free cash flow and Meta reported negative cash flow for the first time.

Job Cuts and Outlook

During the fiscal first quarter, Microsoft cut 4,800 jobs and announced buyouts for up to 60,000 employees on Monday to balance heavy AI spending with capital efficiency. The company also set up an AI implementation unit and revealed a Copilot AI super app with coding abilities during the quarter. Executives held a conference call with analysts at 5:30 p.m. ET to issue guidance.

Context

Large technology companies are spending heavily on data centers to power artificial intelligence tools, leading to intense competition in the cloud computing market. Azure is Microsoft's primary platform for offering cloud computing services to businesses and developers worldwide.