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Investing.com - Microsoft reported better-than-expected fiscal first-quarter results fueled by strength at its cloud computing and artificial intelligence services, although runaway demand is outstripping supply, leading the software giant to increase its spending outlook.
Boosted by companies using Microsoft’s galaxy of offerings to both host and train AI models, revenue came in at $77.67 billion, topping expectations for $75.32 billion.
Azure, Microsoft’s closely-monitored cloud business, jumped in particular by 40% from a year ago, surpassing estimates as well. However, analysts at JPMorgan Chase flagged that "some subset of investors, perhaps overly hopeful, were anticipating a continuation of super-elevated Azure upside."
Operating income, meanwhile, spiked by 24% to $38 billion, above Wall Street projections.
At its Productivity and Business Processes segment, which folds in the firm’s Microsoft 365 suite of products, revenue was $33.0 billion. Its personal computing division grew 4% to $13.8 billion.
On its call, Microsoft said it sees second-quarter revenue of $79.5B-$80.6B, versus the consensus of $ 79.7B. Meanwhile, it expects Q2 Azure revenue growth of 37% on a constant currency basis.
Yet Microsoft’s shares edged down by over 2% in early U.S. trading on Thursday.
Denting sentiment were post-earnings comments from CEO Satya Nadella, who said Microsoft will now look to lift its AI capacity by more than 80% in the ongoing fiscal year and double its AI data center presence over the next two years. As a result, annual AI spending will likely be greater than Microsoft previously estimated, and could even then come up short of the capacity needed to meet its sky-high demand.
Elsewhere, some investors flagged worries that Microsoft may be relying too much on contracts with ChatGPT-maker OpenAI, with the company noting that it will take $3.1 billion charge from investments in the AI startup. Earlier this week, OpenAI reached an agreement with Microsoft, its top backer, which will allow it to transition into a for-profit entity.
(Yasin Ebrahim contributed reporting.)