Microsoft's quarterly results and guidance showcase its AI prowess

Shares of the Club holding climbed roughly 3% in post-market trading Tuesday.

Microsoft's quarterly results and guidance showcase its AI prowess

Microsoft's (MSFT), fantastic fiscal first quarter results and stellar guidance, released on Tuesday, demonstrated that the software giant was one of the strongest competitors in the increasingly competitive AI weapons race. LSEG estimates show that revenue for the three-month period ended September 30 rose by about 13% compared to last year, reaching $56.52 billion. This was higher than analysts' expectations of $54.5 billion. LSEG data revealed that adjusted earnings-per share (EPS) rose 27% over the past year to $2.99. This was ahead of analyst estimates of $2.65 a piece. The Club holding's shares rose by about 4% during Tuesday's post-market trading. Bottom Line A strong quarter and guidance that is better than expected should drive the stock higher on Wednesday. The performance of the quarter was driven by revenue beatings across the board. Highlighted by a surprising acceleration in revenue for cloud computing platform Azure, and a return to growing at the personal computer unit. Maintaining profitability is a challenge when heavy investments are made. We were therefore very impressed that Microsoft's investments in artificial intelligence didn't affect margins. It was Microsoft's largest earnings beat since July 20,21. Microsoft achieved this by balancing its commitment to AI and driving business leverage. Microsoft's exceptional growth in operating margins, which was up by five points compared to last year, is a good example. Azure's slower turnaround shows that, while guidance was generally higher than last year, Microsoft is still at the beginning of its journey to making money from AI tools and services. Microsoft will start monetizing its 365 Copilot, a daily AI assistant, next week. The company claims that this will help users become more productive and creative in applications such as Excel, PowerPoint, and Teams. Copilot is already being used by 40 percent of Fortune 100 companies as part of a program for early access. The feedback has been excellent. Satya Nadella, CEO of Microsoft, said on Tuesday that customers tell him they cannot imagine working without Copilot. Microsoft's AI leadership has been evidently growing with every passing quarter. We remain optimistic about the future of this technology. Microsoft's intelligent clouds segment was the most impressive of all this. Revenues increased by nearly 20% from last year to $24.26 Billion. This figure easily beat analyst estimates of $23,49 billion, and the company's guidance of $23.3 billion to 23.6 billion. Azure and other cloud service revenue increased 29% over the past year, exceeding estimates of 26.2%. What was more impressive, however, was the sequential increase in growth from 26% growth in the fiscal fourth-quarter. This marked the end of Azure's five consecutive quarters with declining revenue growth. Azure's growth was accelerated by the AI services that contributed three points to the quarter. Microsoft says that Azure has now more than 18,000 organisations using its services, which are built on OpenAI technology. This is up from more than 11,000 organisations in the previous quarter. Nadella praised Azure's AI leadership during the post-earnings call. He called its AI infrastructure the most effective for training and inference. Microsoft may have cited this as a reason for Azure's share gain in the third quarter. It is not clear which competitor took the share. One guess is Club holding Alphabet, after the company reported lower-than-expected revenues from its Google Cloud business on Tuesday evening. Microsoft's Personal Computing segment was also notable for its return to growth in revenue after a period of weakness on the PC market. The division's revenues increased by 2.5% compared to last year. This was a much better result than the expected 3.5% decline. The return of growth in Windows OEM (up 4%) and the strong demand for Microsoft 365 were the main factors that helped turn the quarter around. This 10% growth is down from the 11% rate of the fourth quarter fiscal year, but still continues to grow steadily. This shows that layoffs in the corporate world have not had a material impact on the number of Office 365 seats. These are the business users who access the digital software. Microsoft saw a rise in Microsoft 365 subscriptions for consumers, who ended the quarter with 76.7 million subscribers, up from the previous quarter's 74.9 million. Constant currency rates can help remove fluctuations in foreign currencies, such as a strong U.S. Dollar, and provide a more accurate financial picture. Guidance Management’s outlook was more positive than anticipated, which allowed the stock to maintain its gains after hours. Microsoft's fiscal second quarter revenue is expected to grow by 14.5% to 164% over the previous year, which is well above expectations of 11%. It is not clear if the consensus reflects the full impact of Activision Blizzard's recent acquisition, which falls under the Personal Computing division. The second quarter revenue growth for Azure is expected to range between 26% and 27%, in constant currency. This is a much higher growth rate than the analysts' prediction of 24.4%, as reported by FactSet. It would be a slowdown from the 28% rate of growth registered in the last quarter. Microsoft's announcement that revenue growth should be stable in constant currency from the second quarter to the second half of this year, despite AI's higher contribution, disappointed investors who had hoped to see a return to faster growth. Microsoft estimates that second-quarter expenses will be between $15.5 billion and $15.6 billion, a bit higher than analysts' expectations of $15.3 billion. Microsoft expects its full-year margins to be flat, as it balances investment in cloud computing and AI while maintaining its focus on operational leverage. (Jim Cramer’s Charitable Trust owns MSFT and GOOGL. Click here to see the full list. Subscribers to CNBC Club will receive an alert when Jim Cramer makes a trading decision. Jim Cramer waits for 45 minutes after a trade alert is sent before buying or selling stocks in the charitable trust portfolio. Jim will wait 72 hours to execute a trade if he has discussed a stock with CNBC TV. 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Microsoft

The software giant's (MSFT), fantastic first-quarter fiscal results and stellar guidance, which were released on Tuesday, demonstrated that it is among the most formidable competitors in the increasingly competitive AI weapons race.