Microsoft Corp. posted its strongest revenue growth since 2022, spurred by interest in new artificial intelligence products that in turn are driving renewed spending on cloud computing.

Revenue in the second quarter, which ended Dec. 31, rose 18 per cent to US$62 billion, while profit was $2.93 a share, the company said in a statement Tuesday. Analysts polled by Bloomberg on average estimated per-share earnings of $2.78 on sales of $61.1 billion.

Azure cloud-services sales gained 30 per cent, compared with 29 per cent growth in the previous quarter. That exceeded the 28 per cent growth analysts projected.

Chief Executive Officer Satya Nadella has pledged to turn Microsoft into an artificial intelligence powerhouse by partnering with leading startup OpenAI. Those efforts got a boost during the quarter thanks to the release of AI-infused Office software for businesses. 

Still, some investors may have been looking for a more robust performance from Microsoft’s cloud division. The shares slid to $397.65 in late trading, after closing at $408.59 in New York.

“Microsoft had a lot to live up to this quarter,” Hargreaves Lansdown analyst Sophie Lund-Yates wrote in a note to clients. The company “delivered a healthy set of results,” she added, “but not in a strong enough dose to appease the market.”

In an interview, Chief Financial Officer Amy Hood said AI boosted Azure’s growth rate by 6 percentage points. Going forward, she said, interest in AI products will prompt customers to step up their use of such basic services as storage and computing power. “We want to be the place where people can most confidently come to run AI models,” Hood said.

For his part, Mark Moerdler, an analyst at Sanford C. Bernstein & Co., said the fact that six percentage points of Azure growth came from AI means that, “the rest of Azure continues to slow.”

Commercial cloud product revenue rose 24 per cent to $33.7 billion, Microsoft said in a slide presentation on its website. The company on Nov. 1 widely released the corporate version of its Microsoft 365 Copilot — an AI assistant for Office programs like Outlook, Word, PowerPoint and Teams — to large customers. This month, Microsoft expanded access to smaller firms and released a $20 consumer version. The new tools cost companies an extra $30 a month on top of their existing subscriptions, and could one day become a meaningful source of recurrent revenue.

Microsoft’s Office cloud service for business users also topped 400 million paid customers in the quarter, Hood said.

Sales in the More Personal Computing unit rose to $16.9 billion, slightly topping the average analyst projection. Global personal computer sales rose 0.3 per cent in the quarter, according to market research firm Gartner Inc., the first increase in two years and a sign that demand is stabilizing.

Xbox Revenue

Xbox content and services revenue jumped 61 per cent, the first quarterly result that included Activision Blizzard Inc., acquired in October to bolster the Xbox business. Last week, the company cut 1,900 jobs across the game division, many of them at Activision Blizzard. On Monday, Xbox named a new president for the Blizzard unit, Johanna Faries, as Microsoft tries to integrate the acquired businesses and jump-start growth in gaming revenue. 

The Redmond, Washington-based company has invested $13 billion in startup OpenAI, a partnership that vaulted the 48-year-old software maker to the forefront of a race to build new applications that let customers generate fresh content from their own data and information scraped from the web. The partnership underwent a brief period of drama in November when OpenAI’s board ousted co-founder and key Nadella ally Sam Altman, then returned him to his leadership role at the company a few days later — after Microsoft offered to hire him instead. 

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While the management turmoil grabbed attention, it probably didn’t hurt Microsoft’s AI revenue much, if at all, Jefferies analyst Brent Thill wrote in a note to clients. Still, investors are waiting for Microsoft to provide hard data and forecasts on how and when AI will offer a meaningful contribution to the bottom line.