Microsoft Corp.’s quarterly sales and profit climbed more than projected, lifted by corporate demand for the software maker’s cloud and artificial intelligence offerings.

Revenue in the third quarter, which ended March 31, rose 17 per cent to US$61.9 billion, while profit was $2.94 a share, the company said in a statement Thursday. Analysts on average estimated per-share earnings of $2.83 on sales of $60.9 billion. The shares jumped in late trading. 

Chief Executive Officer Satya Nadella has been infusing Microsoft’s entire product line with AI technology from partner OpenAI. The bet is starting to pay off, with some customers adding AI tools that summarize documents and generate content or signing up for Azure cloud subscriptions featuring OpenAI products. 

“Microsoft’s generative AI-specific revenue has already become a key stock driver,” said Dan Morgan, a senior portfolio manager at Synovus Trust Co. “Microsoft appears to be in an excellent position to thrive.”

Azure revenue gained 31 per cent in the quarter, above an average prediction of 29 per cent and picking up slightly from the 30 per cent growth in the previous period. About 7 per cent of that increase was attributable to AI, compared with 6 per cent in the previous quarter.

“You’re seeing healthy growth really across Azure, in the non-AI and AI services, which is important,” Chief Financial Officer Amy Hood said in an interview. “While of course it’s still early in the long-term AI monetization opportunity, we feel good about where we are.” The company is pleased with what it’s seen so far in terms of customer adoption, she said.

Commercial cloud product revenue rose 23 per cent to $35.1 billion, Microsoft said. Commercial bookings, a measure of future revenue, rose 29 per cent, “quite a bit ahead of where we expected,” Hood said. 

The shares gained about 5 per cent in late trading. They had closed at $399.04 in New York. The stock climbed 12 per cent in the March quarter on optimism that the company’s early lead in releasing generative AI products would boost sales. 

AI Assistants

Microsoft has leveraged its $13 billion investment in research pioneer OpenAI to create a series of AI assistants and other features for products ranging from Windows to Office, security software to search engine Bing, many of which carry additional fees for customers to use.

The company is spending heavily to expand its global network of data centers to meet rising demand for AI services — with capital expenses reaching $14 billion during the quarter. “We’re seeing the AI demand continue to grow, and so we’ll continue to work to match that,” Hood said.  

On Nov. 1, the software giant widely released the corporate version of Microsoft 365 Copilot — an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams — to large customers. The new tools cost companies an extra $30 a month on top of existing subscriptions, and could one day become a meaningful source of recurrent revenue. This year, Microsoft expanded access to smaller firms and debuted a $20 consumer version of the AI assistant. 

Microsoft is seeking to push AI outside the corporate market as well. Nadella last month hired Google DeepMind co-founder Mustafa Suleyman to oversee the company’s consumer AI operation, a move reflecting the CEO’s dissatisfaction with the company’s efforts to create and deploy AI products for home users, Bloomberg reported earlier.

The Redmond, Washington-based company is also baking AI into its fast-growing cybersecurity business. The company recently released tools that can generate summaries of suspicious incidents and ferret out methods hackers use to obscure their intentions. The cybersecurity operation, the world’s largest, is showing “relative strength,” according to a Bank of America Securities note.

Security Overhaul

Yet earlier this month, the U.S. Cyber Safety Review Board issued a scathing report documenting the company’s inability to stop hackers from pilfering the email boxes of U.S. officials. The company has announced its biggest security overhaul in more than two decades, but it’s unclear whether the effort will adequately address the challenges — or mollify critics.

Microsoft’s desktop software business benefited from stabilizing demand for personal computers. Global PC sales returned to growth with a 1.5 per cent gain in the quarter, according to market research firm IDC, driven by a recovery in most regions. Windows revenue rose 11 per cent in the quarter, the company said.

Sales of Xbox content and services jumped 62 per cent, thanks almost entirely to a revenue boost from the $69 billion acquisition of Activision Blizzard, completed last year. But Microsoft and rivals are still struggling to restore growth to the overall gaming industry, which is mired in a post-pandemic slump.

In an effort to rekindle sales, Microsoft is making four exclusive Xbox games available for Nintendo Co.’s Switch and Sony Group Corp.’s PlayStation.