AI Lifts Redmond To Highest Quarterly Sales Ever

Topline

Microsoft reported its strongest financial quarter ever Tuesday by several metrics as artificial intelligence jolts the 48-year-old tech behemoth.

Microsoft CEO Satya Nadella is all smiles as his company’s share price skyrocketed to an all-time … [+] high this summer.

The Washington Post via Getty Images

Key Facts

The company posted $56.2 billion in sales and $2.69 earnings per share in the three-month period ending June 30, smashing consensus estimates of $55.5 billion of revenue and $2.55 earnings per share, according to FactSet.

Microsoft shattered several of its financial records during the most recent quarter, as its gross sales and net income ($20.1 billion) were both all-time bests, while its EPS was the second-highest ever.

Overall, Microsoft’s top line swelled by 21% over the last 12 months while its bottom line spiked by 8%; profits and sales grew by 10% and 6% from last quarter, respectively.

Largely driving the gains was a 21% year-over-year in operating income in its intelligent cloud segment including much of Microsoft’s current AI offerings.

Microsoft’s stock slipped less than 1% immediately after its earnings release, gnawing at its nearly 50% gain year-to-date.

Key Background

Microsoft’s $2.6 trillion market capitalization at the end of regular trading hours Tuesday made it the second-most valuable company in the world. Its valuation has skyrocketed by about $800 billion this year as investors generally buy into the notion that Microsoft will translate the AI hype into profits. Microsoft made a splash in January by making a multibillion-dollar investment into buzzy ChatGPT parent OpenAI and shared its most tangible way it plans to generate fresh revenue from AI last week after it revealed its $30 monthly price-point for its generative AI “Copilot” tool across its family of apps. Generative AI has “outsized revenue potential” for Microsoft, Goldman Sachs analysts led by Kash Rangan wrote in a note previewing earnings, upping their price target from $350 to $400 for the stock.

Contra

The Washington-based firm reported a 4% year-over-year decline of sales in its personal computing division, which includes Windows, Bing and gaming.

Tangent

Microsoft rival Alphabet also reported earnings after the bell Tuesday, topping estimates for quarterly profit and sales. The Google parent reported $8 billion of quarterly revenue in its cloud segment where it competes most closely with Microsoft.

What To Watch For

Fellow tech titans Meta and Amazon will share their latest financial results Wednesday and Thursday, respectively. Apple, the only company worth more than Microsoft, will report next Thursday.