Microsoft’s quarterly sales up 16% to $65.6 billion as investors ask if AI spending worth it

AI-related products are now on track to contribute about US$10 billion to the company's annual revenue

Microsoft on Wednesday reported its quarterly sales grew 16 per cent to US$65.6 billion as the company sought to assure investors its huge spending on artificial intelligence is paying off.

The company has spent billions of dollars to expand its global network of data centres and other physical infrastructure required to develop AI technology that can compose documents, make images and serve as a lifelike personal assistant at work or home.

As a result, AI-related products are now on track to contribute about US$10 billion to the company's annual revenue, the "fastest business in our history to reach this milestone", CEO Satya Nadella said on a call with analysts Wednesday.

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The software maker also reported an 11 per cent increase in quarterly profit to US$24.7 billion, or US$3.30 per share, which beat Wall Street expectations for the July-September period.

Analysts polled by FactSet Research were expecting Microsoft to earn US$3.10 per share on revenue of US$64.6 billion.

Microsoft has not yet formally reported revenue specifically from AI products but says it has infused the technology and its AI assistant, called Copilot, into all of its business segments, particularly its Azure cloud computing contracts.

Leading in sales for the quarter was Microsoft's productivity business segment, which includes its Office suite of email and other workplace products, growing 12 per cent to US$28.3 billion.

Microsoft's cloud-focused business segment grew 20 per cent from the same time last year to US$24.1 billion for the three months ending September 30.

Its personal computing business, led by its Windows division, grew 17 per cent to US$13.2 billion. A big part of that growth came from Microsoft's Xbox video game business, which was boosted by its purchase of game publishing giant Activision Blizzard a year ago.

Microsoft and the computer makers that run its Windows operating system also this year unveiled a new class of AI-imbued laptops as the company confronts heightened competition from Big Tech rivals in pitching generative AI technology to consumers and workplaces.

Building and operating AI systems is costly and Microsoft reported spending US$20 billion over the quarter, mostly for its cloud computing and AI needs. That includes building energy-hungry computing centres and supplying them with specialised chips to train and run AI models.

Microsoft has also invested billions of dollars in AI start-ups, particularly its partner OpenAI, maker of ChatGPT and the underlying chatbot technology on which Microsoft's own Copilot is based.

Nadella emphasised the company's push to get customers applying AI platforms in their workplaces as AI tools transform jobs and work tasks.

Earlier this year, a scathing report by a federal review board found "a cascade of security failures" by Microsoft let Chinese state-backed hackers break into email accounts of senior US officials.

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