Microsoft Earnings: Capitalizing on an Early and Aggressive Move Into Gen AI

February 1, 2024 / Carolina Milanesi

Microsoft reported a 33% increase in profit and an 18% increase in revenue for the latest quarter. Investors are eager to see the company’s heavy heavy bet on artificial intelligence pay off.

Key Takeaways

  • Microsoft is steadily positioning itself as a critical enterprise partner for AI-driven business transformation.
  • AI is becoming a hook into Azure as Microsoft added more than 53,000 Azure AI customers over the past 12 months, with over a third of those new to Azure.
  • Devices revenue remained soft, signaling that Surface might not have recovered post-pandemic as much as other PC OEMs have. That said, with the AI PC coming out party set for the summer, there is still an opportunity for Surface to turn things around for the year.


What’s Significant

  • Microsoft doubled down on providing proof points on how AI is helping its customers with savings, revenue generation, productivity gains, and other benefits. This gives confidence to investors in the long-term opportunity but also helps potential customers in their decision-making.
  • Copilot being pervasive within GitHub and Power Platform and with third parties creating APIs and plugins for AI empowers Microsoft to become the destination for developers’ engagement.
  • Microsoft’s gaming business, especially after acquiring Activision Blizzard, has become increasingly important as a constant revenue opportunity through subscriptions. Xbox content and services revenue increased substantially by 61%. This makes gaming the third largest business within Microsoft.
  • While investors have bought into AI and the opportunity it offers, there are some concerns about regulators limiting the reach AI could have.
  • The ability of Copilot to address different parts of the business offers Microsoft the opportunity to have other entry points and the ultimate power of locking enterprises onto its tools because of the value that cross-business data will be able to drive with AI.
  • Last week, Microsoft’s market capitalization surpassed the $3 trillion mark for the first time, positioning it as the world’s most valuable company by Tuesday’s market close. With a valuation slightly higher than Apple’s, Microsoft overtook its rival, the world’s largest company for the better part of the past three years, to regain the top spot earlier this month.

Key Numbers

Financial Performance:

– Microsoft’s revenue for the quarter ended December 31, 2023, was $62.02 billion, marking an 18% increase compared to the same period in the previous year. This growth was also evident in the operating income, net income, and diluted earnings per share.

– The constant currency impact should be noted, which contributed to a 16% increase in revenue, operating income, net income, and diluted earnings per share year over year.

Business Highlights:

– Revenue in the Productivity and Business Processes segment increased by 13% year over year, Intelligent Cloud by 20%, and More Personal Computing by 19%. These segments experienced varying degrees of constant currency impact.

– Dynamics 365 revenue grew by 27%, driven by 24% constant currency growth, while Azure and other cloud services revenue increased by 30% (28% in constant currency).

– Windows revenue saw a 9% increase, with Windows OEM revenue growing by 11% and Windows Commercial products and cloud services revenue increasing by 9% (7% in constant currency).

– Xbox content and services revenue increased substantially by 61% (60% in constant currency) driven by the impact of the Activision acquisition.

Shareholder Returns:

– Microsoft returned $8.4 billion to shareholders in the form of share repurchases and dividends during the second quarter of fiscal year 2024.

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