Microsoft is set to significantly increase its investment in AI infrastructure in the coming fiscal year, despite experiencing slower growth in its cloud business. This move highlights that the benefits of substantial investments in AI technology may take longer to materialize than anticipated by Wall Street.
Following the announcement of increased spending, Microsoft's shares initially fell by 7%, but later recovered to close down 4% after the company indicated on a post-earnings call that Azure cloud growth is expected to accelerate in the latter half of fiscal 2025. The company's capital spending surged 77.6% to $19 billion in its fiscal fourth quarter, with nearly all of this spending directed towards cloud and AI-related projects. Total capital expenditures for fiscal 2024 reached $55.7 billion.
Group CFO Amy Hood explained that the increased spending is necessary to meet the growing demand for AI services, with investments expected to yield returns over a period of 15 years and beyond. However, some investors were disappointed by the Azure growth figures, especially since Microsoft's stock has surged nearly 25% over the past year on the back of AI optimism.
Microsoft forecasts that its cloud business will grow by 28% to 29% in the July-September quarter, slightly below market expectations of 29.7%, according to Visible Alpha. This comes after a 29% growth in the quarter ending June 30, which was lower than the 30.6% expected by analysts and represented a slowdown from the previous quarter.
Daniel Morgan, a senior portfolio manager at Synovus Trust, which holds shares in Microsoft, commented, "The street doesn't have a lot of patience. They see you spending billions of dollars and they want to see a pickup in revenue of that amount." He added, "If these companies do not hit it out of the ballpark and are far better than the estimates, then they are going to be knocked back."
Despite the overall slowdown in Azure growth, AI services contributed more significantly to revenue, accounting for 8 percentage points of the increase in the June quarter, up from 7 percentage points in the previous quarter. CEO Satya Nadella noted that Azure AI now has more than 60,000 customers, a nearly 60% increase year-on-year, with average customer spending also on the rise.
Microsoft has deeply integrated AI across its products, from the Bing search engine to productivity tools like Word, largely leveraging technology from OpenAI. The productivity segment, which includes Office apps, LinkedIn, and the 365 Copilot assistant, saw an 11% growth, outperforming expectations of 10%.
The company's Intelligent Cloud unit, which houses the Azure cloud-computing platform, reported a 19% increase in revenue to $28.5 billion for the fourth quarter, slightly missing analysts' estimates of $28.68 billion, according to LSEG data. Overall, Microsoft's total revenue for the fourth quarter rose 15% to $64.7 billion, surpassing analysts' expectations of $64.39 billion. Meanwhile, revenue from its personal computing business grew by 14%, benefiting from a stabilizing market for personal computers.
(Sourec:www.theprint.in)
Following the announcement of increased spending, Microsoft's shares initially fell by 7%, but later recovered to close down 4% after the company indicated on a post-earnings call that Azure cloud growth is expected to accelerate in the latter half of fiscal 2025. The company's capital spending surged 77.6% to $19 billion in its fiscal fourth quarter, with nearly all of this spending directed towards cloud and AI-related projects. Total capital expenditures for fiscal 2024 reached $55.7 billion.
Group CFO Amy Hood explained that the increased spending is necessary to meet the growing demand for AI services, with investments expected to yield returns over a period of 15 years and beyond. However, some investors were disappointed by the Azure growth figures, especially since Microsoft's stock has surged nearly 25% over the past year on the back of AI optimism.
Microsoft forecasts that its cloud business will grow by 28% to 29% in the July-September quarter, slightly below market expectations of 29.7%, according to Visible Alpha. This comes after a 29% growth in the quarter ending June 30, which was lower than the 30.6% expected by analysts and represented a slowdown from the previous quarter.
Daniel Morgan, a senior portfolio manager at Synovus Trust, which holds shares in Microsoft, commented, "The street doesn't have a lot of patience. They see you spending billions of dollars and they want to see a pickup in revenue of that amount." He added, "If these companies do not hit it out of the ballpark and are far better than the estimates, then they are going to be knocked back."
Despite the overall slowdown in Azure growth, AI services contributed more significantly to revenue, accounting for 8 percentage points of the increase in the June quarter, up from 7 percentage points in the previous quarter. CEO Satya Nadella noted that Azure AI now has more than 60,000 customers, a nearly 60% increase year-on-year, with average customer spending also on the rise.
Microsoft has deeply integrated AI across its products, from the Bing search engine to productivity tools like Word, largely leveraging technology from OpenAI. The productivity segment, which includes Office apps, LinkedIn, and the 365 Copilot assistant, saw an 11% growth, outperforming expectations of 10%.
The company's Intelligent Cloud unit, which houses the Azure cloud-computing platform, reported a 19% increase in revenue to $28.5 billion for the fourth quarter, slightly missing analysts' estimates of $28.68 billion, according to LSEG data. Overall, Microsoft's total revenue for the fourth quarter rose 15% to $64.7 billion, surpassing analysts' expectations of $64.39 billion. Meanwhile, revenue from its personal computing business grew by 14%, benefiting from a stabilizing market for personal computers.
(Sourec:www.theprint.in)