Microsoft’s shares surge on strong quarterly cloud sales growth

Microsoft’s shares surge on strong quarterly cloud sales growth

Microsoft Corp. shares jumped after the company reported stronger-than-expected quarterly sales and profit growth, suggesting customer demand for cloud services has held steady despite a wave of tariffs and economic turbulence.

Total revenue in the fiscal third quarter increased 13% to $70.1 billion, while adjusted profit was $3.46 a share, the company said in a statement Wednesday. Analysts on average estimated sales of $68.5 billion and adjusted per-share earnings of $3.21.

The world’s largest software maker is considered a leader in commercializing AI products, thanks to its close partnership with ChatGPT maker OpenAI. In addition to providing computing infrastructure, Microsoft has launched AI assistants in widely used productivity applications such as Office and Excel.

The Azure cloud unit, which sells computing power and other services, posted a 33% revenue gain in the quarter, beating the Wall Street estimate of 29%. The company attributed 16 percentage points of Azure’s third-quarter growth to AI, compared with 13 points in the prior quarter and said a new cloud commitment from OpenAI helped drive bookings.

During a call with analysts, Chief Financial Officer Amy Hood said Azure will grow as much as 35%, adjusting for currency fluctuations, during the current quarter. That guidance also exceeded analysts’ estimates.

Microsoft shares rose about 8% in extended trading after closing at $395.26 in New York. The company’s stock was down about 6% this year through the Wednesday close as part of a broader market selloff.

Like its peers Amazon.com Inc. and Alphabet Inc., Microsoft has raced to construct enough data centers to meet spiking demand for generative AI training and tools. But in recent months, it has slowed some of these development efforts, leading investors to debate whether this is an indication of financial prudence or lower long-term demand for cloud and AI.

Third-quarter capital expenditures including leases, an indication of data center spending, came in at $21.4 billion. That’s less than the company spent the prior quarter, the first such decline in more than two years.

Capital expenditures will continue to grow in the new fiscal year which begins in July, albeit at a slower pace, Hood said. Microsoft will remain short of data center capacity to meet AI demand for longer than it previously anticipated, she added.

Sales in Microsoft’s unit containing business applications grew 10% to $29.9 billion. That was just ahead of the average analyst estimate of $29.7 billion.

Microsoft is working to convince customers to upgrade to more expensive tiers of its software to use the latest AI features, including its Copilot assistants. Those upgrades have helped the company generate more revenue per user, investor relations chief Jonathan Neilson said in an interview.

The threat of changing US government policy, from tariffs to federal cost-cutting efforts, have rattled business leaders and investors in recent weeks. While tariffs don’t impact software makers directly, they can hurt demand from customers and increase costs across the economy.

As a large software company, Microsoft’s “not as subject to all the worries we see in the tech space,” Dan Morgan, senior portfolio manager at Synovus Trust, said in an interview on Bloomberg Television. The company “beat on every major metric.”

Microsoft has some direct exposure to hardware businesses through its Xbox gaming console and Surface laptops. The unit containing these products reported a 6% gain to $13.4 billion in the third quarter, ahead of the average estimate of $12.7 billion.