Microsoft’s Q4 earnings beat expectations with AI and hybrid cloud

Microsoft logo on a black front door | Microsoft’s Q4 earnings

Microsoft’s financial results for Q4 2023 beat analyst expectations with $56.2bn in revenue as the tech giant leans into its AI bet with growth also showing in its hybrid cloud offering.

As the wider tech industry capitalizes on advances in the highly coveted AI space, Microsoft has seen its valuations for the quarter ending June 30, 2023 grow with rapid investments in AI-powered technology.

Satya Nadella, chairman and chief executive officer of Microsoft, said during the results call: “Every customer I speak with is asking not only how, but how fast they can apply next-generation AI to address the biggest opportunities and challenges they face – and to do so safely and responsibly.”

Led by this, he laid out Microsoft’s three key priorities for the near future: helping customers use the breadth and depth of Microsoft Cloud to get the most value out of their spending; investing to lead in the new AI platform shift by infusing AI across every layer of the tech stack; and driving operating leverage.

However, Microsoft’s earnings report for the quarter showed slowing revenue growth for its cloud service Azure as revenue from it only grew 26 percent in the quarter compared with 27 percent in the previous quarter. At the same time, Nadella pointed out that Azure continues to take share, as customers migrate their existing workloads and invest in new ones, with growth also in hybrid cloud offering Azure Arc:

“We continue to see more cloud migrations, as it remains early when it comes to long-term cloud opportunity. We are also seeing increasing momentum with Azure Arc, which now has 18,000 customers, up 150 percent year-over-year, including Carnival Corp., Domino’s, Thermo Fisher.”

Microsoft’s quarterly wins were also driven by Microsoft Cloud, which “delivered a solid close to the fiscal year” with revenue of $30.3bn, up 21 percent year-on-year, Amy Hood, executive VP and chief financial officer of Microsoft, said during the call. 

Office Commercial products and cloud services revenue increased 12 percent driven by Office 365 Commercial revenue growth of 15 percent. Revenue in Intelligent Cloud also increased 15 percent to $24bn.

Some of Microsoft’s key achievements from the quarter include Meta supporting Llama on Azure and Windows, as well as OpenAI, and Azure OpenAI Service gaining momentum with more than 11,000 partnering organizations across industries, including IKEA, Volvo Group, Zurich Insurance and digital natives like Flipkart, Humane, Kahoot!, Miro and Typeface using the service.

Microsoft has also recently expanded its AI collaborations with Bing and Capgemini, KPMG and notable hospital collaborations with the NHS.