Microsoft reported Wednesday that quarterly revenue rose 16% to $65.6 billion as the company sought to reassure investors that its massive spending on artificial intelligence is paying off.
The company has spent billions of dollars to expand its global network of data centers and other physical infrastructure needed to develop AI technology that can compile documents, create images and serve as a lifelike personal assistant at work or at home.
As a result, AI-related products are now on track to contribute about $10 billion to the company’s annual revenue, the “fastest company in our history to reach this milestone,” CEO Satya Nadella said on a call with analysts on Wednesday.
The software maker also reported an 11% increase in quarterly profit to $24.7 billion, or $3.30 per share, better than Wall Street expectations for the July-September period.
Analysts polled by FactSet Research expected Microsoft to earn $3.10 per share on revenue of $64.6 billion.
Microsoft has not yet formally reported revenue from AI products, but says it has integrated the technology and its AI assistant, called Copilot, across its business segments, particularly its Azure cloud computing contracts.
Microsoft’s productivity business segment, which includes the Office suite of email and other workplace products, led in revenue last quarter, growing 12% to $28.3 billion.
Microsoft’s cloud-focused business segment grew 20% from the same time last year to $24.1 billion in the three months ended September 30.
The personal computing business, led by the Windows division, grew 17% to $13.2 billion. Much of that growth came from Microsoft’s Xbox video game business, which got a boost from its purchase of game publisher Activision Blizzard a year ago.
Microsoft and the computer manufacturers that use the Windows operating system also unveiled a new class this year AI-infused laptops as the company faces increasing competition from Big Tech rivals in bringing generative AI technology to consumers and workplaces.
Building and operating AI systems is expensive, and Microsoft reported spending $20 billion this quarter, mostly on its cloud computing and AI needs. That includes building power-hungry computing centers and supplying them with specialized chips to train and run AI models.
Microsoft has also invested billions of dollars in AI startups, most notably partner OpenAI, maker of ChatGPT and the underlying chatbot technology on which Microsoft’s own Copilot is based.
Nadella highlighted the company’s push to let customers adopt AI platforms in their workplaces as AI tools transform jobs and work tasks.
Nadella, now in his tenth year as CEO, saw his annual compensation increase 63% this year to $79 million, according to a statement filed ahead of Microsoft’s upcoming annual shareholder meeting in December. That’s despite Nadella offering to reduce his financial incentive to reflect his personal responsibility for dealing with cybersecurity threats.
Earlier this year, a damning report A federal review board found a “cascade of security flaws” in which Microsoft allowed Chinese state-backed hackers to break into the email accounts of senior U.S. officials.