Microsoft surges on robust results – AI competition boosts the company

On Tuesday, Microsoft surprised and pleased investors with solid results in its fiscal third-quarter earnings announcement, despite the challenging environment. Sales of $52.9 billion above projections of $51 billion, up 7% (or 10% in constant currency terms).

Earnings per share for Microsoft increased by 10% to $2.45, which was more than the average forecast of $2.23. The company’s operating margin held steady at 42%, and the stock price increased by 9% in extended trading as a result of the solid performance and optimistic forecast.

Cloud services on the rise

Microsoft not only exceeded expectations for revenue and earnings but also showed impressive expansion in its key markets. For example, sales in its largest division, Intelligent Cloud, increased by 16% to $22.1 billion, largely thanks to a 27% increase in Azure sales. Although Microsoft does not break out Azure’s revenue share, that sector is the largest in the company’s Intelligent Cloud offering.

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During the last quarter, Azure expanded its market share again. Microsoft released over a dozen new Azure solutions, some integrated with third-party services like Databricks and RedHat. In addition, it has expanded its new OpenAI service to include OpenAI tools for text and code production as well as picture generation using GPT-3.5, Codex, and Dall-E 2. Ten times as many people use Azure OpenAI as in the second quarter.

New trends in AI have begun

Microsoft is doubling down on its AI initiatives after recently investing $10 billion in OpenAI. LinkedIn’s Generative AI, for instance, provides Premium users with recommendations for personalizing their writing; businesses may use AI-powered tools to craft compelling job postings that attract top talent. OpenAI’s potent GPT-4 software development tool is being integrated with GitHub’s Copilot X, an AI that provides coding suggestions.

The new AI-powered Bing and Edge browser, which provides ChatGPT-like help in addition to standard internet search, was released, and users can now receive real-time translations in 40 languages within Teams.

“The world’s most advanced AI models are coming together with the world’s most universal user interface – natural language – to create a new era of computing,” said CEO Satya Nadella. “Across the Microsoft Cloud, we are the platform of choice to help customers get the most value out of their digital spend and innovate for this next generation of AI.”

Strong outlook for the near future

The firm predicted similar patterns to the third quarter in its fourth-quarter outlook, with revenue growth in efficiency and business processes of 10% to 12% and revenue growth in intelligent cloud of 15% to 16%. There is a slowing reduction of 5-7% in private computers. The midpoint of that forecast would translate to $56.1 billion in sales, an increase of 8% over last year’s top line.

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The stock price has jumped above previous highs in the $293 area, posting one-year highs. As long as it trades above that level, the immediate trend seems bullish, targeting $315.