Microsoft Earnings Show Quarterly Revenue Is Up 16% to $65.6 Billion

The company’s profit increased 11 percent to $24.7 billion, beating Wall Street’s expectations and its own predictions.

Microsoft on Wednesday reported financial results that could quell investor unease over its heavy spending on artificial intelligence.

Sales from July through September hit $65.6 billion, up 16 percent from a year earlier. Profit rose 11 percent, to $24.7 billion. The results surpassed Wall Street’s expectations and Microsoft’s own predictions.

At the same time, Microsoft showed little sign that it was putting the brakes on the blistering pace of its spending to build data centers for its A.I. work. The company spent $20 billion on capital expenditures, up 79 percent from a year earlier, and said it would spend even more in the current quarter.

Satya Nadella, Microsoft’s chief executive, said in a call with investors that the company’s business that lets customers adopt A.I. will be on track to have more than $10 billion in annual sales in the current quarter, making it “the fastest business in our history to reach this milestone.”

The company’s executives told investors that Microsoft expected sales to be constrained through the end of the year because its available data center capacity was not enough to meet customer demand.

“We have run into, obviously, lots of external constraints because demand showed up pretty fast,” Mr. Nadella said.

The company has bet heavily on artificial intelligence through its investments in the start-up OpenAI. That relationship has given it “an enviable position as the vanguard of the new technology,” and Microsoft is gaining share from competitors, analysts for Raymond James wrote in a note to investors.

Since the summer of 2023, A.I. has helped stabilize the growth of Microsoft’s flagship cloud computing service, Azure. This past quarter, Azure’s growth held roughly steady at 34 percent, not including currency fluctuations. More than a third of that growth came from artificial intelligence, including selling access to OpenAI’s systems and providing computing power when customers use OpenAI’s directly from the start-up. The company said Azure’s growth might slow down in the current quarter but would pick up speed in the new year as more A.I. data center capacity became available.

(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.)

Asked about the reported stress in the relationship, Mr. Nadella called the partnership “super beneficial.” He said Microsoft’s early bet had paid off. “We effectively sponsored what is one of the highest-valued private companies today,” he added.

Amy Hood, Microsoft’s finance chief, said the company expected $1.5 billion of expenses in the current quarter from its outside investments, “primarily driven by our share of the expected loss from OpenAI.”

Investors have been jittery about Microsoft’s capital spending because they have “limited visibility” into whether and how the spending produces solid returns on the investments, analysts from Bank of America wrote in a recent note.

The company does not disclose sales of its own A.I. assistants, which cost business customers $30 per month, but its overall Microsoft 365 commercial cloud revenue, which includes Excel, Team and Word, was up 15 percent.

Gaming, which has become Microsoft’s biggest effort to serve consumers, had $5.6 billion in revenue, up 44 percent. The company’s $69 billion acquisition of the game maker Activision Blizzard closed last October.

“We set new records for monthly active users in the quarter, as more players than ever play our games across devices and on the Xbox platform,” Mr. Nadella said.

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• A former OpenAI researcher who helped gather and organize the enormous amounts of internet data used to train the startup’s ChatGPT chatbot says the company broke copyright law.

The Age of A.I.

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• Nevada used A.I. to find students in need of help. The new system cut the number of students deemed “at risk” in the state by 200,000, leading to tough moral and ethical questions over which children deserve extra assistance.
• A project at Stanford points to the need for institutional innovation, especially in government, to increase the odds that A.I. enhances democracy.