Microsoft Q4 Profit Jumps 10% as AI Investments Power Growth Despite Cloud Setback
Microsoft Corp reported a solid 10% profit increase for the October-December quarter, fueled by its substantial investments in artificial intelligence (AI) technology. The company’s net income hit $24.1 billion (£19.4 billion), or $3.23 per share, surpassing Wall Street’s expectations of $3.11 per share. Revenue for the quarter totaled $69.6 billion (£56 billion), reflecting a 12% year-over-year growth and beating analyst forecasts.
Strong Performance Across Key Business Segments
Despite an overall strong performance, Microsoft’s cloud business, a key driver of its AI efforts, fell slightly short of projections. Sales in the cloud-focused segment grew 19% to $25.5 billion (£20.5 billion), but it missed the expected $25.83 billion (£20.79 billion) forecast by analysts. This slight miss in cloud revenue has led to concerns over Microsoft’s ability to dominate in the AI space, even as it expands its presence in AI technologies and products like Copilot.
The company’s productivity business, which includes its popular Office suite of products, posted a healthy 14% growth to reach $29.4 billion (£23.66 billion). Meanwhile, its personal computing business, driven by the Windows division, remained steady with $14.7 billion (£11.83 billion) in revenue.
Cloud and AI Strategy
Microsoft’s cloud business has become a cornerstone of its AI efforts, particularly through its partnership with OpenAI, the maker of ChatGPT. Despite the recent emergence of DeepSeek, a Chinese AI startup with claims of rapidly advancing AI at a lower cost, Microsoft remains confident in its ability to compete. CEO Satya Nadella downplayed the impact of DeepSeek’s innovations, calling it a positive development for the industry, as efficiency gains and lower prices allow more widespread use of AI technologies.
“We have more than doubled our overall data centre capacity in the last three years,” Nadella remarked during a call with investors. “We have added more capacity last year than any other year in our history.” Microsoft’s aggressive expansion of its data center network is essential to supporting its cloud and AI ambitions, as the company plans to invest a staggering $80 billion (£64.38 billion) this year in building energy-intensive computing centres equipped with specialized chips for running advanced AI models.
Response to Market Concerns
Despite the cloud miss and rising competition from DeepSeek, Microsoft’s stock remained resilient, experiencing only slight declines in after-hours trading. However, concerns over a broader tech stock sell-off, sparked by fears of losing AI supremacy, lingered in the market, following DeepSeek’s claims of catching up to US tech giants at a fraction of their budget.
On its part, Microsoft has embraced the growing AI ecosystem, integrating DeepSeek’s latest AI model into its Azure platform. Nadella acknowledged the startup’s innovative strides and underscored the importance of competition in fostering efficiency and driving more widespread AI adoption.
As Microsoft continues to navigate its AI-driven growth trajectory, its robust cloud infrastructure and strategic investments signal the company’s commitment to leading the AI revolution, despite the challenges posed by emerging competitors.
