Microsoft's Solid Q4 Earnings

• Azure's growth slows, but management anticipates acceleration

• Q4 revenue up 15% to $64.7 billion

Microsoft Corp.'s Azure cloud-computing service saw a slowdown in quarterly growth, which left investors concerned about the returns on significant AI investments. Azure revenue, a key driver of Microsoft's growth, rose by 29% in the fiscal fourth quarter, compared to a 31% increase in the prior period.

CEO Satya Nadella has been enhancing Microsoft's product line with AI technology from partner OpenAI. This includes digital assistants named Copilots, which can summarise documents, generate computer code, write emails, and create other content.

The company is now providing Azure cloud subscriptions that incorporate OpenAI products. In competition with Amazon.com Inc. and Google, Microsoft has been investing heavily in constructing new data centers to support the increasing demand for cloud computing and AI services.

In the fourth quarter, capital expenditures rose significantly to $19 billion, up from $14 billion in the previous one. Investors are closely monitoring this increase, which includes server farm leases, as the company progresses with its extensive AI infrastructure build-out.

The Copilot service, which doubles the cost of a monthly subscription to about $60 per user for corporations, is expected to eventually generate a robust flow of recurring revenue.

Total revenue for the fourth quarter grew by 15% to reach $64.7 billion, with an adjusted profit of $2.95 per share. Analysts had predicted average sales of $64.5 billion and earnings of $2.94 per share.

For consumer services, Microsoft 365 subscriptions jumped by 10%, hitting 82.5 million.

Gaming revenues surged by 44%, significantly boosted by the Activision acquisition's 48-point impact. The company now boasts over 500 million monthly active users across various platforms and devices.

In the fiscal fourth quarter, Microsoft began offering Surface PCs equipped with AI capabilities that can operate certain models locally without needing an internet connection.

For its latest quarter, Microsoft expects total revenue between $63.8 billion and $64.8 billion.

Since the start of the year, Microsoft's stock is up by 12%, while the SP 500 has risen by 17%.

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