Yahoo Finance Microsoft Corp (MSFT) Q3 2024 Earnings Call Transcript Highlights: Strong Growth and AI ...
Revenue: $61.9 billion, up 17% year-over-year.
Earnings Per Share (EPS): $2.94, up 20% year-over-year.
Microsoft Cloud Revenue: $35.1 billion, grew 23%.
Azure Revenue Growth: 31%, with significant contributions from AI services.
Operating Income: Increased 23%, operating margins expanded by approximately 2 points to 45%.
Commercial Bookings: Increased 29% year-over-year, driven by Azure commitments.
Capital Expenditures: $14 billion, supporting cloud demand and AI infrastructure scaling.
Free Cash Flow: $21 billion, up 18% year-over-year.
Return to Shareholders: $8.4 billion through dividends and share repurchases.
Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Congratulations on the fantastic quarter. A lot of excitement in the marketplace around generative AI and the potential of these technologies, but there's also a lot of investment going on behind them. It looks like Microsoft is on track to ramp CapEx over 50% year-on-year this year to over $50 billion. And there's media speculation of more spending ahead with some reports talking about like $100 billion data center. So obviously, investments are coming well ahead of the revenue contribution, but what I was hoping for is that you could give us some color on how you as the management team try to quantify the potential opportunities that underlie these investments because they are getting very big. And maybe if you could give us some hint on whether there's any truth to the potential of like $100 billion data center out there. A: Thank you, Keith, for the question. Let me start and Amy, you can add. At a high level, the way we, as a management team, talk about it is there are 2 sides to this, right? There is training and there's inference. What -- given that we want to be a leader in this big generational shift and paradigm shift in technology, that's on the training side. We want to be able to allocate the capital required to essentially be training these large foundation models and stay on the leadership position there. And we've done that successfully all the way today, and you've seen it flow through our P&L, and you can continue to see that going forward.
Q: Satya, how would you characterize the demand environment? On one hand, you have bookings in Azure both accelerating year-over-year in the quarter, but we're seeing a lot of future concern, hesitation from other vendors we all cover. So I think everyone would love to get your sense of budget health for customers this year. A: Great question, Brent. There are a couple of things I would say. On the Azure side, which I think is what you specifically asked, we feel very, very good about the -- we're fundamentally a share taker there because if you look at it from our perspective, at this point, Azure has become a port of call for pretty much anybody who is doing an AI project.
Q: Congratulations on the quarter and the guidance. I want to follow up on the AI obviously. We're seeing companies shifting their IT spending to invest in and learn about AI rather than receiving additional budgets for AI. At some point for AI to be transformative, as everyone expects, it needs to be accretive to spending. Satya, when do you believe AI will hit the maturity level? Will it be net increase to IT or outside of IT spending? And what would be the leading indicators of that maturation? And Amy, am I characterizing this correctly as it relates to Azure? Some projects are being delayed so that, that spending could be shifted to -- from core Azure toward Azure AI? A: Yes. Great set of questions, Mark. Let me just start by saying a good place to start is to watch what's happening in terms of standard issues for software teams, right? I mean if you think about it, they bought tools in the past. Now you basically buy tools plus Copilot, right? So you could even say that this is characterized as perhaps shift of what is OpEx dollars into effectively tool spend because it gives operating leverage to all of the OpEx dollars you're spending today, right?
Q: Satya and Amy, congrats on these outstanding Azure results. I'd love to hone in a little bit on the 7 point lift to Azure growth from AI, outstanding number, but it's leveling off a little bit from 6 points in December. I'm wondering if you could unpack that a little bit. To what extent did the capacity issues that you Amy highlighted on the call impact that number. Is there any seasonality? I wouldn't think so. Or any other factor that can swing around that number that you'd advise us to keep in mind? A: Thanks, Karl. There's not a seasonality to the numbers. So you're absolutely right to start there, and it's a good question. The way to think about it is a bit more by -- it is how much capacity we have in play and how much capacity that we have to sell on the inferencing side in particular. And so that is partially why you see the capital investment in the shape that it is, is because right this minute, we do have demand that exceeds our supply by a bit. So it is fair to say that, that could have been an impact on the number for the quarter and does impact a little bit the number in Q4.
Q: I have more conceptual question for Satya. If you think about copilots and what you're doing there, you're kind of impacting a lot of this in businesses and the opportunities seem very broad-based. How do you think this will play out in the industry between you guys offering certain copilots versus like the rest of the industry following and everyone seems to have a copilot now and seems to be talking about it? How does that impact what you want to do, your partner strategy going forward? A: Yes, it's a great question. So the way we see it play out is, if you think about it, the way Office was used broadly for knowledge work was in the context of business processes, right? So it's not like -- when people do knowledge work, they're not doing knowledge work. They're doing knowledge work in support of making progress in the context of sales enablement, customer service revenue ops, supply chain or what have you, right? So that's the first thing to note. And they do it inside of e-mail. They do it inside of Teams. They do it inside of Excel, PowerPoint, Word and what have you.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
