(Reuters) -Microsoft reported blockbuster growth in its cloud-computing business on Wednesday that pushed its quarterly revenue past Wall Street estimates, showing businesses are still splurging on artificial intelligence services despite fears of a bubble.
The results highlight the growing returns from Microsoft’s massive AI investments. They come as a web of circular deals, soaring valuations and limited evidence of AI productivity gains have raised doubts about how long the boom will hold.
Shares of the company were down 4.2% in extended trading.
Microsoft said the Azure cloud business, its key AI unit, grew 40% in the July-September period – its fiscal first quarter – outpacing Visible Alpha estimates of about 38.4%.
Total revenue rose 18% to $77.7 billion, beating expectations of $75.33 billion, according to data compiled by LSEG.
That marked the tech company’s second major win this week, following a revised deal with OpenAI that gave it a 27% stake worth about $135 billion, as well as a cut of sales and access to intellectual property, clearing up uncertainty about the collaboration with the company synonymous with the AI boom.
The partnership, which gives Microsoft exclusive access to the models behind ChatGPT, has been key to Azure’s rapid growth in recent quarters and strengthened its challenge to top cloud provider Amazon.com. It is also crucial to Microsoft’s other AI services, such as 365 Copilot for businesses.
That AI push has turned Microsoft into the world’s second-most valuable firm with a $4 trillion market value, trailing only the $5 trillion chip company Nvidia. The stock, up nearly 30% this year, is among the best performers in the “Magnificent 7.”
Some analysts have praised Microsoft’s decision in recent months to let some OpenAI contracts go to Oracle, saying it shows discipline in steering limited AI capacity toward more profitable enterprise customers. The move is part of a broader strategy to lessen its dependence on OpenAI by building its own models and partnering with other AI firms, including Anthropic.
Still, capacity limits have hampered Microsoft’s ability to fully cash in on AI. The company and other major cloud providers are expected to spend about $400 billion on data centers and AI chips this year, with executives and analysts saying such spending is necessary to harness the technology’s potential.
(Reporting by Aditya Soni and Deborah Sophia in Bengaluru; Editing by Maju Samuel)
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