Microsoft beats revenue estimates as AI shift bolsters cloud demand
Microsoft topped quarterly revenue expectations on Wednesday, helped by strong growth at its cloud-computing business Azure, reassuring tech investors that hefty AI investments were paying off and sending shares of the company nearly 6 per cent higher in after-hours trading.
Microsoft's results, which follow similarly above-expectations outcomes from Google last week, could ease concerns about a potential slowdown in AI demand, after some analysts pointed to canceled data-center leases at Microsoft as a sign of excess capacity. Investors had also been worried about the fallout from sweeping U.S. tariffs that are prompting businesses to rein in spending.
Microsoft said revenue at its Azure cloud division rose 33 per cent in the third quarter ended March 31, exceeding estimates of 29.7 per cent, according to Visible Alpha. AI contributed 16 per centage points to the growth, up from 13 points in the previous quarter.
The company said its commercial bookings growth - which reflects new infrastructure and software contracts signed by business customers - was up 18 per cent in the fiscal third quarter, driven in part by a new Azure contract with ChatGPT creator OpenAI. Microsoft declined to comment on the size of the deal or what role it played in overall Azure sales growth.
"In a quarter clouded by tariff fears and AI spending scrutiny, this quarter is a clear win - even if it wasn't fireworks," said Jeremy Goldman, senior director of briefings at E-marketer.
"Azure and other cloud services beat Street expectations - and Microsoft Cloud's growth shows it continues to turn AI infrastructure into margin-friendly growth. Still, investors will be watching closely as the company continues to pull back on data center expansion."
In the third quarter, Microsoft's capital expenditures rose 52.9 per cent to $21.4 billion, less than estimates of $22.39 billion, according to Visible Alpha. However, the proportion of longer-lived asset expenditures fell to about half of the total.
Jonathan Neilson, Microsoft's vice president of investor relations, said that reflected a shift in Microsoft's spending from long-lived assets such as data center buildings toward more spending on shorter-lived assets such as chips.
"You plug in CPUs and GPUs, and then you can start recognizing revenue," Neilson said, referring to categories of chips made by Intel, Advanced Micro Devices and Nvidia, among others.
The Intelligent Cloud unit, which houses Azure, posted revenue of $26.8 billion, compared with expectations of $26.17 billion. Overall, revenue rose 13 per cent to $70.1 billion, beating estimates of $68.42 billion, according to data compiled by LSEG.
Redmond, Washington-based Microsoft reported a profit of $3.46 per share in the quarter, beating expectations of $3.22 per share.
The company also benefited from a 6 per cent increase in revenue at its more personal computing unit, which includes Xbox and its line of laptops.
Microsoft, which has also repeatedly said it is capacity constrained on AI, has been pouring billions into building its AI infrastructure and expanding its data-center footprint.
A senior Microsoft executive reiterated earlier this month that the company would spend $80 billion on its data center build-out this year, and investors will be watching closely to see if it reaffirms that on its post-earnings call.
A pullback in Big Tech's AI spending will have big implications for suppliers such as chip giant Nvidia, as well as the U.S. economy. J.P. Morgan analysts estimated in January that data-center spending could contribute between 10 and 20 basis points to U.S. economic growth in 2025-2026.
Neilson said inventory levels had already been high during the company's fiscal second quarter as retailers stocked up on computers and gaming consoles on tariff worries. That activity continued into the third quarter, he said.
"We expected in Q3 for them to bring inventory levels down to a more normal level. What we actually saw was inventory levels remained elevated," Neilson said. "There continues to be some uncertainty there."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
36 minutes ago
- Straits Times
Why China biotech is getting a DeepSeek moment too
Workers working at a Sinovac Covid-19 vaccine production line in Beijing in 2021. So far, the biotech industry is relatively insulated from Mr Trump's tariffs. PHOTO: XINHUA From artificial intelligence to military defence, China has offered a few DeepSeek moments in 2025 , showcasing that the country is more than just the world's biggest factory, and that it also can compete with the US on the technology front. Now biotech is having its own. In late May, Pfizer agreed to pay a record US$1.25 billion (S$1.6 billion) upfront to license an experimental cancer drug from Shenyang-based 3SBio, as well as making a US$100 million equity investment in the Hong Kong-listed biotech company. Two weeks later, Bristol Myers Squibb said it would pay BioNTech US$1.5 billion guaranteed to license a similar cancer asset. It was a win for BioNTech, which bought Biotheus, the Chinese company that developed the drug, late in 2024 for US$800 million. Join ST's Telegram channel and get the latest breaking news delivered to you.
CNA
37 minutes ago
- CNA
Commentary: Trump's tariffs are likely to outlast him
WASHINGTON: Effective opposition to US President Donald Trump's trade policies has yet to pop its head above the parapet. Old-school pro-trade types are sidelined – consoling themselves, perhaps, that the protectionist turn will reverse once the costs are clearer. Be patient, we tell ourselves: This, too, shall pass. Will it? I don't doubt that the policies will fail. By itself, however, that won't restore the pre-Trump era. The reason is not, or not only, our diminishing capacity for good government. I'm also not assuming that MAGA economics will endure because Democrats will keep on losing elections. Depending on what happens in the mid-terms, and in 2028, the new economic order might be modified, but it's unlikely to be abandoned. Now that Republicans are converted to the cause, the post-neoliberal core of MAGA economics – use trade barriers to reshape the economy – commands a broad US consensus. The White House has encountered setbacks in the courts, and critics rightly say the execution has been a shambles, but it has many levers to pull on tariffs, and the purpose is widely endorsed. Support for the liberal trading order founded after 1945 has evaporated. When the costs of the new protectionism become more visible, the quarrel will be between Trump-style trade warriors and opponents who aim to do the same, but more skilfully. TRADE POLICY REDEFINED The president has redefined normal trade policy. Talk of TACO (Trump Always Chickens Out) is misleading. True, the administration has veered back and forth on tariffs, one day threatening extraordinarily high barriers, the next, after financial-market blowback, lowering or pausing them while it negotiates. Yes, by the standards of his most audacious threats, today's average effective tariff of roughly 15 per cent looks timid. But measured against pre-Trump, it's still transformative, and so is the thinking that underpins it. The presumption in favour of low or zero tariffs is gone. So is the idea that trade is positive-sum, and that a multilateral rule-based system is the best way to realise the gains. When the administration last week doubled US tariffs on steel and aluminium from 25 per cent to 50 per cent, the reaction wasn't, 'What on earth are they thinking?' It was, 'Well, that doesn't much change the overall average.' All by itself, the so-called 'baseline (that is, universal) reciprocal' tariff of 10 per cent renounces the post-war trading order – and it's already seen as no big deal. This new Washington Consensus isn't the only factor. Many businesses are pushing back against the new tariffs, arguing that the barriers will boost costs, disrupt supply chains and turn earlier investments into losses. But once they've adapted to the new regime, the same calculations will push the other way: Please don't change the rules again. In addition, domestic producers facing less competition from abroad will be able to raise their prices. Once they start collecting the rents created by trade barriers, they'll favour retaining them, or maybe raising them further. FISCAL CONSEQUENCES Perhaps the most important force cementing tariffs in place will be their fiscal consequences. This came into sharper focus last week when the Congressional Budget Office did an official score of the revenues the new taxes will raise. According to the CBO's numbers, if the new tariffs imposed between Jan 6 and May 13 stick (30 per cent on imports from China and Hong Kong, 25 per cent on cars and auto parts, the 10 per cent baseline tariff, the 25 per cent tariff on steel and aluminium, and partial 25 per cent tariffs on products from Canada and Mexico), they would reduce budget deficits by US$2.8 trillion over the next 10 years. This takes account of lower debt-interest payments, slightly slower economic growth, and inflation 0.4 percentage points higher this year and next. Nearly US$3 trillion is an enormous sum, even by US budget standards – and as public debt continues to grow, the government will need that money. In discussions over the budget Bill before Congress, projected tariff revenues aren't directly involved. Official and unofficial scorers focus on the effects of the Bill on projected deficits and debt while leaving tariffs to one side – they aren't in the measure, they're the result of executive action not legislation, and in the past the revenues have been both modest and stable, hence barely worth discussing. That's going to change. Revenues are revenues, as US Treasury Secretary Scott Bessent points out. If tariffs raise US$3 trillion over the next 10 years, that matters a lot. Added to the budget Bill, they even simulate fiscal responsibility. To be clear, even US$3 trillion wouldn't come close to stabilising projected public debt. But it would be enough to cover most of the new fiscal losses in the forthcoming budget Bill. (It wouldn't cover all of them, as Bessent claims, because scores of the Bill ignore the front-end loading, 'temporary' measures and other accounting gimmickry which disguise its full likely cost.) More to the point, once it becomes routine to fold tariffs into discussions of fiscal sustainability, bringing the barriers back down will be hard. When the fiscal crunch comes and public debt demands immediate attention, as it must, policymakers will have to select from, say, higher income taxes, lower health-insurance subsidies and limits on social security payments. Alternatively, higher tariffs. If you see tariffs as a tax on foreigners not Americans – another misconception fostered by the new orthodoxy – the answer is obvious. Economic policy regimes can shift, as we've just witnessed. So there's hope: Restoring the old trade order isn't impossible. The question is how much damage, over how many years, will be needed to force another big rethink. Right now, I see few grounds for optimism.
CNA
2 hours ago
- CNA
Consumer Reports urges Congress to drop electric vehicle tax proposal
WASHINGTON :An influential consumer organization on Wednesday urged Republican lawmakers to drop a plan to impose a proposed $250 annual fee on electric cars to pay for road repairs. Consumer Reports, which also tests and rates new vehicles, noted that Republican Senator Bernie Moreno has called for boosting the proposed yearly fee to $500 for EVs and $250 for plug-in hybrids versus the tax and budget bill over the fee in the bill approved by the U.S. House in May. WHY IT'S IMPORTANT The fees would mean consumers would pay anywhere from three to seven times as much as owners of similar conventional gasoline vehicles in federal gas taxes, Consumer Reports said. The new fees could hit Tesla, GM other EV owners. KEY QUOTES Chris Harto, senior policy analyst at Consumer Reports said the EV fees were "punitive taxes designed to confiscate fuel savings from consumers who just want to save money for their families." CONTEXT Lawmakers in April dropped a $20 federal yearly registration fee on all vehicles starting in 2031 to fund road repairs. The U.S. House bill would end a $7,500 tax credit for new EVs for most automakers by Dec. 31, end a $4,000 used car EV tax credit, repeal vehicle emissions rules and kill an Energy Department loan program that supports the manufacture of green advanced technology vehicles. It would also phase out EV battery production tax credits in 2028. Ford said the bill's provision to eliminate EV battery production using Chinese technology threatens the automaker's projected $3 billion investment in a Marshall, Michigan, plant that is 60 per cent complete and slated to employ 1,700 workers. On Thursday, President Donald Trump will sign three resolutions approved by lawmakers barring California's electric vehicle sales mandates and diesel engine rules, auto industry and House aides told Reuters.
