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Microsoft Beats Expectations, But AI Concerns Force Shares Down

FILE - The Microsoft logo in Issy-les-Moulineaux, outside Paris, France, April 12, 2016. (AP Photo/Michel Euler, File)
FILE - The Microsoft logo in Issy-les-Moulineaux, outside Paris, France, April 12, 2016. (AP Photo/Michel Euler, File)
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Microsoft Beats Expectations, But AI Concerns Force Shares Down

FILE - The Microsoft logo in Issy-les-Moulineaux, outside Paris, France, April 12, 2016. (AP Photo/Michel Euler, File)
FILE - The Microsoft logo in Issy-les-Moulineaux, outside Paris, France, April 12, 2016. (AP Photo/Michel Euler, File)

Microsoft delivered solid quarterly results on Wednesday, beating analyst expectations with revenue jumping 16 percent to $65.6 billion, but questions were raised about the company's big spending on the AI boom.
The tech giant reported net income of $24.7 billion for the quarter ending September 30, marking an 11-percent increase from the same period last year. Earnings per share rose 10 percent to $3.30, AFP said.
The company attributed the solid performance to robust growth in its cloud computing and artificial intelligence businesses.
"AI-driven transformation is changing work... and workflow across every role, function, and business process," said Microsoft CEO Satya Nadella, adding that the company was winning new customers through its AI platforms and tools.
The Redmond-based company has been at the forefront of the generative AI revolution, largely thanks to its partnership with OpenAI, the creator of ChatGPT.
The company has rolled out AI features at a furious pace, mainly under its Copilot brand, leaving investors hopeful for a return on investment from the expensive technology.
But the tech giant warned that its gross margin outlook for its crucial cloud division, or how much money it expects to make, was going to be lower just as its investment in AI infrastructure was set to grow.
The news sent Microsoft's share price down by nearly four percent in after-hours trading.
"Microsoft's latest earnings came in a bit above expectations, but the results may leave some investors wanting more clarity," said Emarketer senior director Jeremy Goldman.
"The true wildcard this quarter has been Microsoft's AI investments. It's pouring cash into building out infrastructure, with major capex implications. Yet, the revenue returns from AI remain more of a promise than a present reality," he added.
Azure, Microsoft's cloud computing platform, saw strong growth with revenue increasing 34 percent, when adjusted for currency fluctuations.
During the quarter, Microsoft also returned $9.0 billion to shareholders through dividends and share repurchases, helping pump up share value.
With the jitters over Microsoft's massive outlays on AI, the company has trailed other tech giants on Wall Street this year, gaining just over 15 percent, while Meta has surged 70 percent and Amazon climbed nearly 30 percent.
In a notable development, Microsoft's gaming division showed substantial growth, with Xbox content and services revenue surging 61 percent, primarily due to the recent Activision Blizzard acquisition, which contributed 53 percentage points to this increase.
Google parent company Alphabet on Tuesday set the scene for the tech earnings season with a solid report, as its cloud computing division posted strong results on the back of AI adoption by search engine users.

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Meta Shows Strong Growth as AI Spending Surges

The Meta logo is seen at the Vivatech show in Paris, France, Wednesday, June 14, 2023. (AP)
The Meta logo is seen at the Vivatech show in Paris, France, Wednesday, June 14, 2023. (AP)
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Meta Shows Strong Growth as AI Spending Surges

The Meta logo is seen at the Vivatech show in Paris, France, Wednesday, June 14, 2023. (AP)
The Meta logo is seen at the Vivatech show in Paris, France, Wednesday, June 14, 2023. (AP)

Facebook owner Meta saw net income and revenues top expectations on Wednesday as the company said it would expand investments into artificial intelligence, drawing nervousness from investors.
The social media behemoth, which is also the parent company of Instagram and WhatsApp, said net profit in the third quarter was $15.7 billion -- up 35 percent on the same period last year, AFP said.
Revenues rose 19 percent to $40.6 billion, slightly higher than analyst estimates.
But investors sent Meta shares lower in after hours trading over the outlook for AI spending in the months ahead and another big loss at its virtual and augmented reality arm, Reality Labs.
"Our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there, too," Meta's founder and chief executive Mark Zuckerberg told analysts.
"We haven't decided on a final budget yet, but those are some of the directional trends," he added.
Meta's share price slipped nearly three percent after its earnings results were published.
Like its Big Tech peers, Meta is rushing into artificial intelligence as it tries to build revenue streams away from its social media core business.
In recent months Zuckerberg has put most of his attention and spending on the company's AI innovations that have been rolled out as chatbots across its platforms or used to upgrade its ad tech.
On Wednesday, Meta once again raised its capital investment outlook: for 2024 alone, it is forecasting a range of $38-40 billion, compared with $37-40 billion previously, much of it for AI.
'Rising costs'
Investors "were a little disappointed by the rising costs" said Jasmine Enberg of Emarketer.
"It's going to take longer time to pay off" than some had hoped, she added.
In the first quarter this year, the spending had already caused concern among investors, despite a doubling of earnings.
But a quarter later, Meta's results impressed investors with a further surge in profits, showing that its core ad business could support the investments.
"Meta's solid revenue growth in the quarter will help stave off investor concern about its AI investments," said Debra Aho Williamson of Sonata Insights, who added that these investments were making it easier to post ads on the platforms.
However, she warned, that the full impact of consumer facing AI "won't be felt until 2025 or beyond."
Reactions were positive last month when the company unveiled its Orion augmented reality glasses, which remain experimental but bolstered confidence that Meta will be a leader in the AI wearable space.
Meta also hopes to ride on the excitement of its Ray-Ban Meta smart glasses, which it developed with EssilorLuxottica, the European eyewear giant.
Analysts believe that the glasses could be a hot item during the end-of-year holiday season.
But the recurring losses at Reality Labs, the VR division, continued to weigh on investors minds. The division posted $270 million in revenues in the third quarter -- and $4.4 billion in operating losses.