Having surpassed Apple Inc. and achieved a $3 trillion market capitalization both in the last week, Microsoft Corp. again showed why it’s the company to beat in the commercial artificial intelligence market with its fifth straight quarter of record revenues and largest profit growth in more than two years.

Growth of 30% in the Azure cloud business was a big reason for the quarter’s success, beating analysts’ estimates of 27% growth. Microsoft attributed 6% of that expansion to demand related to its Azure AI and other AI services. That was twice the AI contribution of the previous quarter.

Fiscal second-quarter revenue, of $62 billion was up 18% from $52.7 billion a year earlier and above analysts’ estimates of $61.1 billion. Adjusted profits of $2.93 a share were well above estimates of $2.77. Net income jumped 33%, to $21.9 billion, the strongest quarterly income growth the company has seen in nearly three years.

All about AI

Microsoft’s earnings call with analysts was all about AI. ” We have moved from talking about AI to applying AI at scale,” said Chief Executive Officer Satya Nadella (pictured). “Azure took share with our AI advantage.”

Nadella said Microsoft’s Azure AI cloud service now has 53,000 customers, more than one-third of which have signed up in the last 12 months. “Over half of the Fortune 500 use Azure AI today,” he said. “We’re integrating AI across the entire data analytics stack.”

Microsoft shares have gained nearly 70% over the last 12 months compared to a 40% increase in the broader Nasdaq Composite Index. Shares were down less than 1% in after-hours trading today, a decline that analysts attributed to profit-taking after a better than 10% gain this month.

The report was the first to include results from video game developer Activision Blizzard Inc. The company said Activision sales lifted overall revenue by four percentage points but made no mention of the 1,900 employees it plans to lay off.

Copilot confidence

On a conference call with analysts, executives talk enthusiastically about the series of software copilots the company has introduced for software developers, sales representatives and customer service representatives.

“Copilots have helped over 30,000 companies improve sales and customer service,” Nadella said. “The Copilot for Windows is already available on more than 75 million Windows 10 and 11 PCs.”

The CEO compared copilot adoption to that of PCs in the 1980s when local desktop processing power permanently changed workflows.

“It shows up in your applications and becomes a daily habit,” he said. “It’s being used for summarization and drafting. The blank page thing goes away. Now you have the most important data in your company able to be queried by natural language.”

Microsoft’s AI products are “significantly more advanced than what is available from their competitors,” Bernstein Analyst Mark Moerdler told Dow Jones. “It’s not a marketing pitch; it’s proof points.”

Segment results

Intelligent cloud revenue rose 20%, to $25.9 billion, ahead of the consensus estimate of $25.3 billion. Revenue in the desktop-oriented More Personal Computing segment jumped 19% to $16.9 billion and beat the consensus estimate of $16.8 billion.

Server products and cloud services revenue increased 20% in constant currency, driven partly by strong Azure growth. Office Commercial products and cloud services revenue increased 13% in constant currency, highlighted by Office 365 Commercial revenue growth of 16%. Dynamics revenue increased by 19%.

Chief Financial Officer Amy Hood declined to provide guidance on total revenues for the fiscal third quarter but said sales of productivity applications should grow about 12%, Office 365 revenue should increase by 15%, and Intelligent Cloud sales should surge by about 18%.

“We’re seeing customer engagement grow over time,” she said. “It’s an important dynamic in the optimism you hear from us.”

Photo: Microsoft/livestream