An AI business boost was no panacea for Microsoft
The stock was down over 7% in after-hours trading after the company reported weaker-than-expected growth in its Azure cloud business.
Microsoft’s investments in AI are starting to pay off. The trouble was, this wasn’t enough to offset the slowdown in growth for cloud services during the past quarter.
Shares of Microsoftwere down nearly 8% in after-hours trading on Tuesday, before paring half those losses.
The culprit was softer growth in its Azure cloud-computing business, which was up 29% this quarter, while Wall Street expected a 30.1% increase.
Revenue of the intelligence cloud unit, which includes the Azure platform and has grown to become the company’s sales engine, rose to $28.5 million, also slightly below analysts’ expectations of $28.69 million, according to FactSet.
Still, Microsoft’s revenue rose 15 percent compared to a year ago, beating expectations.
The world’s largest publicly traded company is widely seen as a frontrunner in tech’s AI race. Microsoft invested aggressively in the technology, including a $13 billion bet on ChatGPT maker OpenAI early last year. Azure was a key focus point to that strategy: Microsoft said that AI lifted Azure’s revenue by eight percentage points.
But the initial frenzy over the potential of AI is subsiding somewhat, with bean counters on Wall Street questioning how much these investments will pay off. That was the case with Alphabet last week, which did not give a clear answer on how much money it’s making from its AI investments.
Commentary around AI spending was in focus during Microsoft’s earnings call. Management said that they expect to materially increase capital expenditure on AI in the next financial year, telling analysts that roughly half of the spending in the last financial year was on infrastructure that would drive long-term growth. Capex jumped 78 percent in the most recent quarter to $19 billion.
“It’s really on land and builds and finance leases and those things will be monetized over 15 years and beyond, and they are incredibly flexible.” said Amy Hood, Microsoft’s chief financial officer, “We have got long life, flexible assets.”
One company was able to cheer Microsoft’s results: Nvidia. That capex spending is a boon for the designer of the chips that power the AI boom. Nvidia’s stock fell 7% on Tuesday, but managed to recover more than half of those losses in the after-hours session.
