Microsoft beat Wall Street estimates for third-quarter revenue and profit on Thursday, driven by gains from adoption of artificial intelligence across its cloud services, and the company’s shares jumped more than 4% in extended trade.

Executives forecast ranges for current quarter cloud revenue that were mostly above Wall Street targets.

The rise in Microsoft shares after the close in New York lifted the company’s stock market value by $128-billion as profit and revenue growth overshadowed its higher-than-expected capital expenditure. In contrast, Facebook and Instagram parent Meta’s market capitalisation fell by $200-billion on Wednesday after it warned of rising AI expenses and issued a lower-than-anticipated revenue forecast.

“Microsoft’s AI-powered earnings demonstrate that doubling down on innovation is paying off,” said Jeremy Goldman, senior director of briefings at Emarketer, pointing to the company’s early moves in generative AI, such as its large investment in ChatGPT maker OpenAI.

Microsoft revenue rose 17% to US$61.9-billion in the quarter ended March, exceeding the consensus estimate of $60.8-billion, according to LSEG data. Earnings per share of $2.94 topped Wall Street’s target of $2.82.

At the same time, Microsoft’s AI-driven capital expenditure in the third quarter was nearly $1-billion more than analysts’ estimates. Capex grew from $11.5-billion in the previous quarter to $14-billion, passing estimates of $13.14-billion, according to Visible Alpha.

“We’re continuing to see customer demand grow quite a bit,” said Brett Iversen, Microsoft’s vice president of investor relations. “And so we’re making sure to scale our available capacity in line with that.”

Azure pumping

The stock has soared on Microsoft shipping generative AI tools based on its strategic partnership with OpenAI and also helped it capture the world’s most valuable company crown from Apple this year. Microsoft has special access to OpenAI’s coveted AI technologies, which it has been working to infuse across its product portfolio, such as in Azure, Bing and Microsoft 365, which includes Word, Excel and PowerPoint.

Revenue from Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, rose to $26.7-billion, passing the average estimate of $26.24-billion, LSEG data showed. It forecast fourth quarter Intelligent Cloud revenue of $28.4-billion to $28.7-billion, mostly ahead of Wall Street targets of $28.47-billion.

Read: Microsoft’s AI lead puts AWS cloud dominance on watch

Azure revenue rose 31%, higher than a 29% growth estimate from market research firm Visible Alpha. Microsoft forecast Azure growth in the fiscal fourth quarter would be 30-31%, which would put it ahead of the 28.5% Wall Street target.

Microsoft does not break out the absolute revenue figure for Azure, the part of its business best situated to capitalise on booming interest in AI.

The Copilot tool, a set of generative AI assistants launched in November for $30/month, has lifted Microsoft’s enterprise software and Windows businesses. A recovery in PC sales was also a factor.

The More Personal Computing unit revenue increased 17% to $15.6-billion, surpassing analyst expectations of $15.08-billion, according to data from LSEG.

Productivity and Business Processes, Microsoft’s unit that houses office software and LinkedIn, increased revenue 12% to $19.6-billion. Analysts had estimated $19.54-billion, according to data from LSEG. — Yuvraj Malik, (c) 2024 Reuters