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Microsoft’s better-than-expected top and bottom-line figures for the quarter ended September 30, 2023 and an optimistic second-quarter outlook led the company’s stock to surge by as much as 6% during after-hours trading.

The company’s net profit in Q1 FY24 surged 27% to $22.3 billion from $17.5 billion in the corresponding quarter last year. Its first-quarter revenue increased 13% to $56.5 billion from $50.1 billion in the year-ago period.

The Windows maker issued an optimistic outlook for the second quarter. It expects second-quarter revenue to be around $60.4 billion to $61.4 billion, Amy Hood, Executive Vice President and Chief Financial Officer of Microsoft, said during the first-quarter earnings call. Its revenue in the corresponding year-ago period was $52.7 billion.

Microsoft Cloud revenue in its first quarter was $31.8 billion, up 24% year-over-year.

“We are off to a strong start to the fiscal year, driven by the continued strength of the Microsoft Cloud,” said Satya Nadella, Chairman and Chief Executive Officer of Microsoft, during the earnings call.

Microsoft is a key player in the cloud-computing industry, competing with Amazon Web Services and Google Cloud. During Q1 FY24, it witnessed a 29% year-on-year revenue growth in Azure and other cloud services, fuelled by high demand for its consumption-based offerings.

Since Q1 FY22, there has been a consistent sequential decline in revenue growth for Azure and other cloud services in each quarter, with the most recent quarter finally breaking this trend by experiencing an acceleration in revenue growth after two years.

“In Azure, we expect revenue growth to be 26% to 27% in constant currency with increasing contribution from AI. Growth continues to be driven by Azure consumption business, and we expect the trends from Q1 to continue into Q2,” Hood noted.

In contrast, Google, a competitor in the cloud-computing sector, released its third-quarter earnings earlier today, revealing a continued slowdown in its cloud revenue growth.

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 $18.6 billion in the quarter, up 13% year-over-year. 

Revenue from Intelligent Cloud, which includes the Azure cloud computing platform, rose by 19% to reach $24.3 billion in the June-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 3% to $13.7 billion in the quarter.

Nadella highlighted that the tech firm is rapidly infusing artificial intelligence (AI) across every layer of the tech stack and for every role and business process to drive productivity gains for its customers.

Microsoft’s Azure AI offers access to models from OpenAI and open-source sources, including its own as well as from Meta and Hugging Face, enabling customers to create customised AI applications meeting their cost, latency, and performance requirements, Nadella said.

He added that over 18,000 organisations now use Azure OpenAI Service, including new-to-Azure customers.

Microsoft is also applying a “new generation of AI to transform how the 985 million members learn, sell, and get hired” on its business and employment-oriented online service LinkedIn. Its revenue increased 8%, “ahead of expectations”.

Gaming continues to be a central focus for Microsoft, and the company has made substantial strides in this domain in recent years. On October 13, Microsoft completed its acquisition of Activision Blizzard, the developer of ‘Call of Duty’, marking Microsoft’s largest-ever and the gaming industry’s biggest deal.

The company expects to incur roughly $900 million per quarter during the second half of the year for purchase accounting adjustments, integration, and transaction-related expenses associated with the Activision acquisition.

Speaking about the outlook for the ongoing fiscal that began with a “strong start”, Hood said, “We will continue to deliver healthy growth in the year ahead driven by our leadership in commercial cloud and our commitment to lead the AI platform wave.”