Microsoft’s cloud computing business had a surprisingly strong quarter despite pressure from the slowing US economy, the company said Tuesday.
Sales in the first three months of the year rose 7 percent from a year earlier to $52.9 billion, and profits rose 9 percent to $18.3 billion. Both exceeded Wall Street expectations.
Microsoft’s cloud business — which includes Azure, its cloud computing product and the Microsoft 365 platform — had revenue of $28.5 billion, up 22 percent from a year earlier.
Sales of Azure, a key investor-watched result, grew 27 percent, in line with investor expectations. Still, that was down from a 46 percent increase the year before. Overall, the segment the company calls Intelligent Cloud was up 16 percent from a year earlier, which was better than expected.
Microsoft’s cloud products are “certainly a very important driver for us going forward,” said James Ambrose, Microsoft’s Director of Investor Relations.
Shares of Microsoft stock rose more than 8 percent in after-hours trading.
Microsoft, like many tech companies, is hampered by the sluggish economy after experiencing substantial growth during the pandemic. The company said in January it would lay off 10,000 workers.
The company’s Windows business has collapsed as the global PC sales market slowed. Microsoft’s personal computing segment revenue was $13.3 billion in the most recent quarter, down 9 percent from a year earlier. Within that category, Windows OEM sales — original installations of Windows software on new computers — fell 28 percent and device sales fell 30 percent.
Revenue from Microsoft’s video game segment, its main consumer business, fell 4 percent from a year earlier, while Xbox hardware sales fell 30 percent.
Still, Microsoft’s stock has remained strong, buoyed in part by the company’s foray into the burgeoning field of artificial intelligence.
Mr. Ambrose cautioned that the strong data does not necessarily indicate an improving macroeconomic environment. “I don’t know if this is a big change in our view of the economy,” he said.
Microsoft CFO Amy Hood said on a call to investors that revenue growth in the current quarter could be flat compared to the unusually strong quarter a year ago.
Microsoft is also poised to capitalize on the boom in AI through its investment in OpenAI, the start-up behind the ChatGPT chatbot. It has already integrated ChatGPT into its Bing search engine, and the company has said it will integrate AI into other Microsoft products as well.
While the company said it was too early for the futuristic technology to impact its quarterly financials, Satya Nadella, the CEO, said “AI” or “OpenAI” at least 24 times in his 15-minute introduction to the investor call.
“We have the most powerful AI infrastructure,” Mr. Nadella said at one point, citing a number of companies that already use Microsoft’s AI tools in their businesses. To support the high demand for its AI products, the company said, it will spend money to scale up that infrastructure.
