Microsoft reports $28B in Q1 profits amid AI boom
What's the story
Microsoft's stock price fell nearly 4% in after-hours trading on Wednesday, despite better-than-expected fiscal first-quarter results. The drop was largely attributed to the company's forecast of increased spending growth for this fiscal year. The tech giant reported a revenue of $77.67 billion, exceeding the anticipated $75.33 billion. Revenue increased 18% in the fiscal first quarter from $65.6 billion a year ago. The tech giant's net income also rose to $27.7 billion in Q1 from $24.67 billion a year ago.
Spending surge
Microsoft's investment in OpenAI results in $3B hit
Microsoft's finance chief Amy Hood announced that the company's capital expenditures (capex) for the first quarter stood at a record $34.9 billion. This is higher than the $30 billion capex and asset acquisition through leases that she had projected in July. The increase is mainly due to Microsoft's efforts to build AI infrastructure, with the investment in OpenAI resulting in a $3.1 billion hit on Q1 net income. Hood also said growth in capital expenditures will accelerate this fiscal year.
Cloud success
Microsoft's Intelligent Cloud unit's performance
Microsoft's Intelligent Cloud unit, which includes Azure, reported $30.9 billion in revenue for the fiscal first quarter. This is a 28% increase from last year and above the StreetAccount consensus of $30.25 billion. For the fiscal second quarter, Microsoft expects revenue to be between $79.5 billion and $80.6 billion with Azure growth at constant currency expected to be 37%, in line with estimates.
Business growth
Productivity and business processes segment's revenue
Microsoft's Productivity and Business Processes segment, which includes Office productivity software and LinkedIn, generated $33 billion in revenue for the first quarter. This is above the $32.33 billion consensus among analysts polled by StreetAccount. The More Personal Computing unit, which includes Windows, search advertising, devices and video games, also reported a 4% growth to $13.8 billion in revenue.
Market response
Microsoft's shift away from OpenAI
Despite the drop in its share price, Microsoft shares are still up 28% this year. The company has also hit a record high earlier this week. Microsoft CEO Satya Nadella said that they have to balance third-party demand with their own first-party needs, fund their own R&D, and build model capability. This is part of a broader strategy to lessen Microsoft's dependence on OpenAI by building its own models and partnering with other AI firms such as Anthropic.