Microsoft Earnings Give Redmond World’s Second-Highest Market Cap
Google Cloud’s financials on Tuesday impressed, too. Channel partners should feel optimistic all around.
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Demand for Microsoft’s generative AI ChatGPT, which relies on the power of cloud computing, is pushing the nearly 50-year-old company to new heights. Investors are bullish on Microsoft’s ability to turn a novelty into tangible revenue.
For its fiscal fourth-quarter 2023, Redmond posted $56.2 billion in sales and $2.69 earnings per share in the three-month period ending June 30. Analysts were expecting $55.5 billion of revenue and $2.55 earnings per share. Net income reached $20.1 billion, marking an all-time record for that metric, along with gross sales. Earnings per share came in at the second-highest level ever in Microsoft’s history.
On the next slide, find out what Azure contributed.
Microsoft says Azure cloud computing, which runs its generative AI platform, drove its overall fiscal year 2023 fourth-quarter results. To that point, revenue in Microsoft’s Intelligent Cloud division — which houses Azure, ChatGPT and a number of other brands — reached $24 billion, up 15% from a year ago. Sales from cloud services and servers, driven by Azure, Microsoft said, jumped 26%.
While that represented a small decline from the previous quarter, Microsoft closed trading on Wall Street on July 25 with a $2.6 trillion market cap, second only worldwide to Apple.
Go to the next slide for more on what the head of Microsoft has to say about cloud and generative AI.
“Organizations are asking not only how — but how fast — they can apply this next generation of AI to address the biggest opportunities and challenges they face — safely and responsibly,” said Satya Nadella, chairman and CEO of Microsoft, in a press release. “We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage.”
Speaking of cloud, Microsoft still does not break out exactly how much Azure contributes to its Intelligent Cloud, or complete, financial results. Most observers continue to believe Azure ranks as the world’s second-largest public cloud provider. There was speculation the division might soon overtake rival Amazon Web Services, but those musings were quashed after the U.S. federal government accidentally leaked data showing Azure in a firm second place.
Of interest is that Microsoft took somewhat of a cost hit in the latest quarter. That’s because it had to fork out a lot of money to build more data centers that support generative AI. Microsoft spent $10.7 billion on capital expenditures in the fiscal fourth quarter, compared to $7.8 billion in the previous quarter. Investors weren’t too happy about that, which likely explains the slight downtick in share prices during after-hours trading.
But, of course, Microsoft does a lot more than cloud and generative AI. The next slide details results from other divisions.
Meantime, in other segment areas, Microsoft said Productivity and Business Processes Revenue increased 10% to $18.29 billion for the fiscal fourth quarter. That came in higher than analyst estimates for $18.1 billion. Productivity and Business Processes include LinkedIn, Office (commercial and consumer) and Dynamics 365.
As a side note, the 365 line now features a $30-per-month “Copilot” option, which is AI-powered. Organizations can pay for Copilot to summarize a day of emails. Also, Microsoft hopes to sell its Azure cloud computing capabilities to firms interested in building their own AI services.
Next, More Personal Computing revenue fell 4% to $13.9 billion. Demand for PCs continues to slump. Still, the outcome was better than the $13.58 billion analysts had forecast. This division comprises Windows OEM, devices, Windows Commercial, Xbox, and search and news advertising.
Microsoft ended its 2023 fiscal year on June 30. Its full results came out to the following:
• Revenue: $211.9 billion, up 7%
• Operating income: $88.5 billion, up 6%
• Net income: $72.4 billion GAAP, down slightly, Microsoft said.
It’s time to switch gears. Next, we look at Google Cloud’s latest earnings.
Google Cloud is seeing its fortunes rise.
For the second quarter of 2023, the world’s third-largest public cloud provider reported $8 billion in revenue, up from $6.3 billion during the same period a year ago. That marked a 7% increase. Analysts were expecting about $7.7 billion in revenue.
But there’s a really critical component to Google Cloud’s new numbers. Go to the next slide
Perhaps most importantly for Google Cloud is that it reported a profit for the second quarter in a row. Historically, the company has struggled with income but, as of 2023’s first quarter, it appears the division of Alphabet is gaining traction. To that point, it showed $395 million in profit for the second quarter versus a loss of $590 million for the second quarter of 2022.
“Our financial results reflect continued resilience in Search, with an acceleration of revenue growth in both Search and YouTube, as well as momentum in cloud,” said Ruth Porat, CFO of Alphabet and Google, in a July 25 news release. “We continue investing for growth, while prioritizing our efforts to durably reengineer our cost base company-wide and create capacity to deliver sustainable value for the long term.”
Alphabet classifies Google Cloud as including infrastructure and platform services, collaboration tools, and other services for enterprises. That encompasses Google Cloud Platform, Google Workspace and other services, which Alphabet doesn’t name.
Want some Google Cloud-related generative AI insight? Go to the next slide.
While Google Cloud’s Bard has yet to make the same headway as Microsoft’s ChatGPT, industry analysts are counting on the generative AI service to make an impact, even if just internally at first.
Alphabet says it’s bolstering AI initiatives within the company to improve productivity and efficiency. How that will play out in terms of financials remains to be seen.
Meantime, there’s an important personnel announcement coming out of Google Cloud parent Alphabet. See the next slide.
Alphabet is promoting CFO Porat to the newly created role of president and chief investment officer. She’ll report to Alphabet and Google CEO Sundar Pichai. Alphabet plans to look for her replacement. Porat has served as the company’s CFO since 2015.
“Ruth has worked to drive financial discipline and returns for shareholders, while spearheading investment to create sustainable, long-term value,” said Pichai in a prepared statement. “As today’s results show, we’re making good progress and we’re committed to continuing this important work. In her new role, Ruth will strengthen our collaboration with policy makers and shape our corporate investments to have maximum economic impact for people and economies around the world.”
We close out this look at Google Cloud earnings with an interesting observation from a financial analyst. Google Cloud partners will definitely want to click to the next slide.
Shares of Alphabet jumped 8% in after-hours trading on July 25. That happened as Thomas Monteiro, senior analyst at Investing.com, told Reuters that Google and its cloud division delivered “fantastic earnings per share.” And those results point to great promise for continued momentum.
“This strongly indicates that a new growth phase for the giant is likely underway,” he said, adding, “Google has finally consolidated itself as a leading force in the highly disputed cloud sector and now has room to focus its expansion in the AI field.”
Shares of Alphabet jumped 8% in after-hours trading on July 25. That happened as Thomas Monteiro, senior analyst at Investing.com, told Reuters that Google and its cloud division delivered “fantastic earnings per share.” And those results point to great promise for continued momentum.
“This strongly indicates that a new growth phase for the giant is likely underway,” he said, adding, “Google has finally consolidated itself as a leading force in the highly disputed cloud sector and now has room to focus its expansion in the AI field.”
Demand for cloud computing and generative AI is showing no signs of slowing. As evidence, just look at the July 25 release of Microsoft earnings, first, and Google Cloud earnings, second.
We say “Microsoft earnings first” for two reasons. One, Microsoft, with its Azure division, remains the world’s second-largest public cloud provider, behind Amazon Web Services. Two, Microsoft earnings on Tuesday propelled the company to a couple of records. We discuss those in the first part of the slideshow above but, as a hint, consider that Microsoft now only trails one other corporation when it comes to global market capitalization. That’s significant.
Hot Microsoft Earnings: Stock Down?
Oddly, though, despite those strong Microsoft earnings, shares of the company were trading down after hours. We explain why. Even so, the software giant’s stock has risen 44% so far in 2023, thanks in large part to its ChatGPT generative AI successes.
Also, in addition to announcing its quarterly numbers, Microsoft earnings on Tuesday note the company’s full-year results. Channel partners who sell Microsoft services and products will be keen to get those figures.
None of this, of course, is to edge out results coming from Google Cloud. Google Cloud still ranks as the world’s third-largest public cloud provider, and while it has a long way to go to top Microsoft, it’s showing its own significant growth. We explore the reasons why. See the slideshow above to get started.
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