Microsoft Beats Forecasts as Azure Growth Accelerates to 48%, Shares Hit Record in After-Hours Trading

Microsoft reported better-than-expected results for the quarter ended in September, and its shares climbed in after-hours trading on Wednesday as the company signaled that growth in its Azure cloud business is still speeding up.

Revenue rose about 19% from a year earlier to $92.28 billion, ahead of the $90.69 billion LSEG consensus. Adjusted earnings per share came to $4.92, up 32% year over year, against analyst expectations of $4.73. The stock gained roughly 3% after hours, which would put it in record-high territory.

Azure revenue grew 48% on both a reported and constant-currency basis, beating FactSet consensus estimates of about 44% and 45%, respectively, and management's own guidance of about 45%. Azure brought in $33.17 billion in the quarter, compared with $22.38 billion a year earlier. It was the first time Microsoft broke out quarterly Azure revenue, following reporting changes announced in September.

The results extend a sharp recovery for the stock. Earlier this year, shares were down about 25% and trading in the mid-$300s, as investors worried the company was falling behind in artificial intelligence, that its seat-based subscription model could be disrupted, and that its AI tools lacked innovation. Sentiment turned in July, when Azure growth picked up, paid Copilot seats gained momentum, and Microsoft set itself apart from other major cloud providers by spending within its means. From a late-June low through Wednesday's close, the stock had risen roughly 51%.

Capacity was a central theme. Past quarters were held back by constraints that left some Azure revenue unrealized, and Microsoft added 24 new data centers across five continents in the latest period. Azure still beat expectations despite delays at third-party suppliers, which could push some AI spending into later periods. Gains in GPU efficiency let the company serve more customers and raise revenue per token, suggesting each dollar of capital spending may support more revenue.

On the earnings call, CEO Satya Nadella said daily users of Copilot, which Microsoft calls "the new OS for work," rose 50% from a year ago, while user satisfaction improved by nearly 20% from the prior quarter to an all-time high. No new figures on paid seats were given.

Capital expenditures, including finance leases, were $45.2 billion, up from $41 billion in the previous quarter and $34.9 billion a year earlier. That was well below the $51 billion analysts expected and the $50 billion management had projected, partly because of the third-party delays. Free cash flow stayed positive, and Microsoft repurchased $2.9 billion of its shares, a notable contrast with Alphabet and Meta, which issued equity this year to fund AI investments. CFO Amy Hood said the company "will access additional sources of funding when we believe it is attractive to do so."

The outlook was slightly stronger than expected. Microsoft guided Azure growth of about 49% to 50% in constant currency for the current quarter, versus analyst forecasts of about 46%. It projected Agents and Infra revenue of $80.1 billion to $80.7 billion, above the $79.6 billion consensus, and Devices and Consumer revenue of $15.9 billion to $16.4 billion, roughly in line with the $16.29 billion estimate. Total revenue is expected at $96 billion to $97.1 billion, compared with the Street's $95.6 billion.

The company plans to spend more than $50 billion on capital expenditures in the second quarter and $170 billion over the calendar year, down from the $175 billion previously expected because of third-party capacity delays. CNBC's Investing Club raised its price target on the stock to $580 from $550. Trading on Thursday could be difficult for tech shares after earnings misses from Alphabet, ServiceNow and Fortinet.