Microsoft unveiled their Q3 2024 results last week. Revenue for the quarter reached $61.9 billion, marking a 17% year-over-year increase. Meanwhile, net income for the same period amounted to $21.9 billion, reflecting a 20% year-over-year rise. The primary growth driver for Microsoft’s revenue was their cloud services segment, encompassing products and services such as OneDrive and Azure. Cloud services revenue for the quarter totalled $35.1 billion, increasing by 23% year-over-year. As of Friday, 26 April, Microsoft held the title of the world’s most valued stock, boasting a valuation of just over $3 trillion.
Microsoft has been among the beneficiaries of the Large Language Model hype that surged last year and this year. Microsoft has invested approximately $13 billion in OpenAI, the creator of ChatGPT. Microsoft does not have any ownership stake in OpenAI. But, they are entitled to a share of profit distributions. Microsoft’s cloud service, Azure, enables businesses to deploy their AI applications using their servers. However, Microsoft has stated that the demand for their AI services currently surpasses their current capacity. Consequently, they are ramping up their capital expenditure. In the latest quarter, they spent $14 billion on capital expenditure, exceeding the anticipated $11 billion.
Microsoft encounters formidable competition from other well-resourced rivals such as Amazon and Alphabet in the cloud computing/AI arena. As companies expand, scaling their market share becomes progressively challenging compared to their initial growth trajectory. Frequently, firms seeking to increase their market presence through acquisitions find themselves paying a premium to entice shareholders. Recently, Microsoft concluded its acquisition of the gaming giant Activision for just under $70 billion. Only time will reveal whether Microsoft has potentially overpaid for the company, or whether they were able to use their platform to create a more compelling gaming experience for users.
Microsoft not only provides cloud and gaming services, it’s Office suite of business tools is widely used in businesses and homes worldwide, it also provides on-line security, data management, virtual meeting services (Teams) and search services, amongst others.
Microsoft and Amazon held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.
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