In their Q2 2024 earnings report, Microsoft beat expectations both in terms of revenue and earnings per share (EPS).
- The company reported revenue of $62 billion for the quarter, exceeding analyst forecasts of $61.1 billion.
- EPS for the quarter also exceeded expectations hitting $2.93, comfortably above the predicted $2.78.
Microsoft AI & cloud services strength
A key driver of this earnings beat was Microsoft's focus on AI and cloud services. Specifically, their Intelligence Cloud segment which includes Azure accounted for $25.8 billion for the quarter, or 41.6% of total revenue. Their total cloud revenue came in at $33 billion for the quarter.
It was a record quarter, driven by the continued strength of the Microsoft Cloud, which surpassed $33 billion in revenue, up 24%.
We’ve moved from talking about AI to applying AI at scale. - Satya Nadella
As expected, Microsoft's suite of AI services contributed significantly to Azure's revenue growth, undoubtedly helped by OpenAI's leadership in large language models and generative AI.
This AI-led approach is not just limited to cloud services but extends across Microsoft's product range, including the Copilot for Microsoft 365 and its consumer-oriented counterpart, Copilot Pro.
Higher expected capital expenditures in 2024
Despite the earnings beat, Microsoft traded 1%+ lower on the day as the company warned about higher capital expenditure in 2024 as they will need to invest in more technological infrastructure to support their generative AI efforts.
As Amy Hood highlighted in their earnings call:
We expect capital expenditures to increase materially on a sequential basis driven by investments in our cloud and AI infrastructure and the slip of a delivery date from Q2 to Q3 from a third-party provider noted earlier.
In summary, Microsoft's Q2 2024 earnings beats underscore its dominance in AI and cloud revenue, although investors shrugged this off due to an anticipated increase in capital expenditures to support ongoing AI efforts.