The news: Microsoft surpassed Wall Street estimates for Q4 revenue and profit, fueled by its cloud business and new AI technology. However, its heavy spending on AI services increased costs as the company bought chips and built new data centers to support advanced AI. What the numbers say: During the quarter, revenue reached $56.2B, an 8% increase from the previous year, while profit surged by 20%. Microsoft's intelligent cloud segment saw a 21% year-over-year growth in operating income, primarily driven by AI offerings. Despite the success, Microsoft's capital expenditures hit a record high since at least fiscal 2016. That spending was driven by increased demand for its AI services, fueled by customer interest and excitement. Quotable: "Organizations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly," CEO Satya Nadella said. The bigger picture: Microsoft's focus on AI investments, particularly in OpenAI and ChatGPT, has given it an early advantage in the generative AI space. The company also plans to charge businesses for access to an AI-powered assistant in its Microsoft 365 software and offer cloud computing solutions for other companies to build their AI services. Why it matters: Investors have shown enthusiasm for Microsoft's AI initiatives, driving its valuation to skyrocket by $800B this year. Microsoft's surge in market capitalization this year now places it as the second-most valuable company globally.
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