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Microsofthas exceeded expectations in both top-line and bottom-line figures for the quarter ending December 31, 2023, driven by growth in cloud revenue.

The company’s net profit in the second quarter of FY24 surged 33% to $21.9 billion from $16.4 billion in the corresponding quarter last year, while revenue increased 18% to $62 billion from $52.7 billion in the year-ago period.

Microsoft Cloud revenue, in the second quarter, was $33.7 billion, up 24% year over year, driven by strong execution by its sales teams and partners.

“It was a record quarter, driven by the continued strength of the Microsoft Cloud. We’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains,” said Satya Nadella, Chairman and Chief Executive Officer of Microsoft, during the second-quarter earnings call.

Microsoft is a key player in the cloud-computing industry, competing with Amazon Web Services and Google Cloud. During Q2 FY24, it clocked a 30% year-on-year revenue growth in Azure and other cloud services.

“In Azure, we expect Q3 revenue growth in constant currency to remain stable to our stronger-than-expected Q2 result. Growth will be driven by our Azure consumption business with continued strong contribution from AI,” said Amy Hood, Executive Vice President and Chief Financial Officer of Microsoft, during the earnings call.

The company now has 53,000 Azure AI customers, and over one-third of them joined Azure in the past 12 months.

“Overall, we are seeing larger and more strategic Azure deals, with an increase in the number of billion-dollar-plus Azure commitments,” Nadella remarked. 

The Redmond-headquartered firm broadly categorises its revenue under three segments—Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. 

Revenue in Productivity and Business Processes was $19.2 billion in the quarter, up 13% year over year.  Revenue from Intelligent Cloud, which includes the Azure cloud computing platform, rose 20% to $25.9 billion in the December-ended quarter.

More Personal Computing—which includes revenue from Windows OEM, devices, Xbox content and services, search and news advertising, as well as Windows Commercial products and cloud services—was up 19% at $16.9 billion in the quarter.

On October 13 last year, Microsoft completed the acquisition of Activision Blizzard, the developer of ‘Call of Duty’, reportedly marking its largest-ever and the gaming industry’s biggest deal. It has reported the revenue from the acquired business in the More Personal Computing segment.

Xbox content and services revenue increased 61% driven by the impact of the Activision acquisition. This quarter, the added revenue has elevated gaming as the firm’s third-largest business, surpassing Windows.

“This quarter, we set all-time records for monthly active users on Xbox, PC, as well as mobile—where we now have over 200 million monthly active users alone, inclusive of Activision Blizzard King,” said Nadella.

Leveraging AI

Nadella had earlier underlined how the tech firm is rapidly infusing AI across every layer of the tech stack and every role and business process to drive productivity gains for its customers.

“In 2024, AI will become a first-class part of every PC,” he noted, during the call.

The Microsoft chief highlighted that new AI-powered features are transforming the firm’s business and employment-oriented online service, LinkedIn’s member experience. In Q2, LinkedIn revenue increased 9% year on year.

“LinkedIn is now helping over one billion members learn, sell, and get hired. We continue to see strong global membership growth, driven by member sign-ups in key markets like Germany and India,” pointed out Nadella.

Speaking about the outlook for Q3, Hood noted, “Based on current rates, we expect FX (forex0 to increase total revenue and segment level revenue growth by less than one point, and we expect no impact to COGS (cost of goods sold) and operating expense growth.”

The Windows maker expects operating expenses of $15.8 billion to $15.9 billion, including approximately $300 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition.

“At a total company level, we delivered strong results in H1, and demand for our Microsoft Cloud continues to drive the growth in our outlook for H2,” said Hood. 

“We are focused on execution so our customers can realise the benefits of AI productivity gains as we invest to lead this AI platform wave,” she added.