MSFT share news: Microsoft AI Business Set To Hit $10B Revenue In Q2

Microsoft Corp (MSFT) revealed in its first-quarter earnings call that its artificial intelligence division is expected to exceed a $10 billion annual revenue run rate by next quarter, making it the fastest-growing segment in the company's history. However, MSFT share fell in extended trading after the company guided below views for sales in the current quarter.

CEO Satya Nadella underscored the swift integration of AI throughout Microsoft’s product lineup, pointing to robust customer demand and extensive adoption in enterprises.

AI Investments Propel Microsoft Towards $10 Billion Milestone

“AI-driven transformation is reshaping work, work artifacts, and workflows across all roles, functions, and business processes, enabling customers to achieve new growth and operational efficiency,” Nadella stated during the earnings call.

“Our AI business is set to exceed an annual revenue run rate of $10 billion next quarter, making it the fastest segment in our history to achieve this milestone,” Nadella stated.

Key factors driving AI growth include:

1. Nearly 70% of Fortune 500 companies are now utilizing Microsoft 365 Copilot.
2. Usage of the Azure OpenAI Service has more than doubled in the past six months.
3. The number of GitHub Copilot enterprise customers increased by 55% quarter-over-quarter.

CFO Amy Hood highlighted the strategic significance of AI investments, remarking, “In just 2.5 years, our AI business is on track to surpass $10 billion in annual revenue run rate by Q2, making it the fastest business in our history to reach this milestone.”

Microsoft's Azure Cloud Grows 33% Driven by AI

The company’s Azure cloud services experienced 33% growth, with AI services contributing around 12 percentage points to this increase. However, Microsoft noted that demand continues to outstrip available capacity, leading to heightened investments in infrastructure.

This surge in AI revenue coincided with Microsoft reporting total revenue of $65.6 billion for the first quarter, marking a 16% increase year-over-year. Microsoft Cloud revenue reached $38.9 billion, reflecting a growth of 22%.

Price Action: Microsoft Corp’s stock closed at $432.53 on Wednesday, up 0.13% for the day, but fell by 3.71% in after-hours trading. Year-to-date, Microsoft shares have gained 16.63%, according to data from Benzinga Pro.

Microsoft Stock Declines Following Outlook

Microsoft has forecasted a slowdown in sales growth for its Azure business in Q2, projecting revenue growth of 31% to 32% in constant currency for the December quarter.

Additionally, the company anticipates a sequential rise in capital expenditures this quarter as it expands its AI data center infrastructure. Microsoft reported spending $20 billion on capex in the September quarter, which aligned with estimates.

In after-hours trading today, Microsoft shares initially surged due to better-than-expected results. However, following the fiscal Q2 outlook provided during a conference call with analysts, the stock fell. Recently, shares were down 3.6% to $416.85.

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