Microsoft posts $92.28 billion quarter as Azure growth hits 48%

Microsoft shares rose approximately 3% in after-hours trading on Wednesday following the release of its quarterly results. The technology giant reported revenue of $92.28 billion for the period ended in September, a 19% increase from the same period last year. This figure exceeded the $90.69 billion consensus estimate tracked by LSEG. Adjusted earnings per share reached $4.92, up 32% year over year and ahead of the $4.73 analysts expected.

The Azure cloud division drove the strongest performance, with revenue growing 48% on both a reported and constant-currency basis. This growth rate surpassed the FactSet consensus of 44% to 45% and management's prior guidance of 45%. Azure generated $33.17 billion in the quarter, up from $22.38 billion in the year-earlier period. This marked the first time Microsoft disclosed quarterly Azure revenue as a separate line item following reporting changes announced in September.

Capacity constraints had limited Azure revenue in previous quarters, but the company added 24 new data centers across five continents during the latest period. Despite delays from third-party suppliers that may push some AI spending to later periods, Azure revenue still exceeded expectations. Improvements in GPU efficiency allowed Microsoft to serve more customers and increase revenue per token, suggesting that each dollar of capital spending is generating higher returns.

Capital expenditures, including finance leases, totaled $45.2 billion. This was lower than the $41 billion spent in the previous quarter and the $34.9 billion spent a year earlier. The figure fell well below the $51 billion analysts had anticipated and the $50 billion management projected, primarily due to the aforementioned supplier delays. Free cash flow remained positive, and the company repurchased $2.9 billion in stock. CFO Amy Hood stated that the company will access additional funding sources when it is attractive to do so, a strategy that contrasts with Alphabet and Meta, which issued equity this year to fund AI investments.

CEO Satya Nadella reported that daily users of Copilot, which the company describes as the new operating system for work, increased 50% from a year ago. User satisfaction rose nearly 20% from the prior quarter to reach an all-time high, though no new figures were provided for paid seats. The stock had risen roughly 51% from its late-June low through Wednesday's close, reversing a 25% decline earlier in the year when investors worried about the company's position in artificial intelligence.

For the current quarter, Microsoft guided for Azure growth of 49% to 50% in constant currency, exceeding analyst forecasts of about 46%. The company projected total revenue between $96 billion and $97.1 billion, compared with the Street's estimate of $95.6 billion. Agents and Infrastructure revenue is expected to range from $80.1 billion to $80.7 billion, while Devices and Consumer revenue should fall between $15.9 billion and $16.4 billion.

Microsoft plans to spend more than $50 billion on capital expenditures in the second quarter. Total spending for the calendar year is now projected at $170 billion, down from the $175 billion previously expected due to third-party capacity delays. CNBC's Investing Club raised its price target for the stock to $580 from $550.