Microsoft has beaten market expectations with strong quarterly performance in cloud computing and software, still benefitting from the pandemic’s online shifting of work, play, shopping and learning.

The US tech colossus, which announced last week a blockbuster deal to buy gaming giant Activision Blizzard, said profit jumped to $18.8 billion in the final three months of last year.

“Digital technology is the most malleable resource at the world’s disposal to overcome constraints and reimagine everyday work and life,” CEO Satya Nadella said, in announcing revenue of $51.7 billion.

Microsoft investments include pouring money into the booming video game market and by extension the metaverse, the virtual reality vision for the internet’s future.

On an earnings call, Nadella pointed to the tens of millions of people playing games such as Forza, Halo and Minecraft, many investing in “avatar” proxies for online worlds, saying that the metaverse is a natural extension.

Microsoft is also meshing virtual gathering components with non-game offerings, such as Teams online collaboration software, according to executives.

“We feel very well positioned to be able to catch what I think is essentially the next wave of the internet,” Nadella said on the call.

The Redmond, Washington-based tech company last week announced a landmark deal to buy scandal-hit Call of Duty maker Activision for $69 billion.

This would be the largest buyout ever for Microsoft, well ahead of LinkedIn in 2016 for $26.2 billion.

Revenue at the career-focused social network was up 37 per cent when compared with the same quarter a year earlier, according to the earnings report.

Acquiring the troubled but highly successful Activision will make Microsoft the third-largest gaming company by revenue, behind Tencent and Sony, Microsoft said.

The proposed merger faces regulatory approval at a time when Europe and the US are seeking to rein in Big Tech.

Revenue in the Microsoft division which makes Xbox consoles and video game content grew 10 per cent in the recently ended quarter, according to the earnings report.

“Redmond is continuing to see strength in the field as more enterprises continue to move to the cloud with Nadella & Co,” Wedbush analyst Dan Ives said in a note to investors.

Ives saw the strong earnings from Microsoft as a “broader indication of strength we expect to see across the enterprise cloud software landscape throughout this earnings season”.

Microsoft competes with Amazon and Google in the cloud computing market.

Units devoted to cloud services at Microsoft each logged double-digit revenue growth, bringing in tens of billions of dollars, according to the earnings report.

Microsoft’s division devoted to the Windows operating system also flourished on what Nadella referred to as a “renaissance” of the personal computer (PC) market that had been withering before the pandemic forced many people around the world to stay home.

“More than ever people are turning to PCs to exercise their agency, and unleash their creativity,” Nadella said.

“We are experiencing a PC renaissance with increases in time spent on PCs and PCs per household.”

Microsoft stock was up slightly in the wake of the earnings call.

Some of the more bullish investors had expected better financial results, according to Wedbush.

“In this jittery market we will see every tech print initially viewed as glass half empty, but ultimately this remains a core cloud name to own,” Ives said.

Third Bridge vice-president Scott Kessler was among analysts keen for insight into what effect an end to the pandemic will have on Microsoft growth fuelled by remote work, play, and school.

“We’ve seen many darlings of the early Covid period becoming fallen angels,” Kessler said in a note.

Nadella expected digital technology to remain a valuable resource as people and businesses “reimagine” life and society looks for solutions to challenges such as labour shortages.

“We are living though a generational shift in our economy and society,” Nadella said.