Microsoft beats revenue forecasts, raises price target to $580

Microsoft shares rose after the company reported quarterly results that exceeded market expectations across revenue and earnings. The tech giant generated $92.28 billion in revenue for the three months ended in September, a 19% increase from the same period last year. This figure surpassed the consensus estimate of $90.69 billion. Adjusted earnings per share climbed 32% to $4.92, outperforming the projected $4.73.

The company’s Azure cloud division drove much of the performance, with revenue growing 48% year over year on a constant-currency basis. Azure revenue totaled $33.17 billion for the quarter, up from $22.38 billion in the prior year. This growth rate exceeded the approximately 45% target set by management and analyst forecasts of 44% to 45%. The acceleration followed a period earlier this year when investors questioned the company’s position in the artificial intelligence market.

Microsoft spent $45.2 billion on capital expenditures, including finance leases, during the quarter. This amount was lower than the $51 billion analysts had forecast and below the $50 billion management had previously projected. The lower spend was partly due to delays in receiving third-party capacity. Despite these delays, the company maintained positive free cash flow and repurchased $2.9 billion in shares. CFO Amy Hood stated the company will access additional funding sources when it is attractive to do so.

CEO Satya Nadella reported that daily users of the Copilot AI tool increased by 50% year over year. User satisfaction for the product rose by nearly 20% in the quarter, reaching an all-time high. The company added 24 new data centers across five continents during the period. Management attributed revenue gains in part to improved GPU efficiency, which allowed for better allocation of capacity to customers.

For the current quarter, Microsoft guided total company revenue to between $96 billion and $97.1 billion. This outlook is above the street estimate of $95.6 billion. The company expects Azure revenue to grow by 49% to 50% in constant currency. Analysts had forecast approximately 46% growth for the same period. Microsoft plans to spend over $50 billion on capital expenditures in the second quarter and $170 billion over the calendar year.

The stock gained roughly 51% from its summer low in late June through Wednesday's close. Shares rose another 3% in after-hours trading, placing the stock in record-high territory. The increase follows a period of volatility where shares had fallen about 25% earlier in the year on concerns regarding competitive pressure and innovation pace.

The company’s financial results show a focus on balancing investment in AI infrastructure with capital returns. While the firm continues to invest heavily in its cloud and AI capabilities, it is managing its cash flow to avoid diluting shareholders through new equity issuance.