Microsoft reported $19 billion in quarterly capital expenditures, racing to expand and update its data center infrastructure to keep up with demand for AI.
The record capital spending, up 35% from the March quarter, is part of a broader trend of tech giants betting big to boost capacity for training and running AI models.
Judging from the reaction to Microsoft’s results, Wall Street is reserving judgment.
The company topped analysts’ expectations for quarterly revenue and profits in its fiscal fourth quarter, but the growth rate in its Azure cloud business underwhelmed investors, sending the company’s shares down in after-hours trading.
Microsoft reported fiscal fourth quarter earnings of $64.7 billion, up 15% from the same quarter last year, and profits of $22 billion, with earnings of $2.95 per share.
The company said its Azure cloud business grew 29% for the quarter (including a contribution of 8 percentage points from AI services, a new high mark for that metric). The Azure growth rate translated into 30% when adjusted for currency variations, on the low side of the company’s prior guidance of 30% to 31% growth.
Some analysts and investors had been looking for stronger Azure growth. Microsoft shares fell more than 5% in after-hours trading.
Azure’s growth rate was lighter due in part to capacity constraints, with AI demand exceeding available supply, said Amy Hood, Microsoft’s chief financial officer, on the earnings conference call. In addition to its capital investments, Microsoft has signed leases with partners including Oracle for infrastructure to help meet the demand.
Hood said Azure growth should accelerate in the second half of the new fiscal year, which began July 1, as capital investments bring new AI capacity online.
In other AI news, Microsoft CEO Satya Nadella told analysts on the call that Microsoft-owned software development platform GitHub’s annual revenue run rate is now $2 billion. The AI-powered GitHub Copilot programming tool accounted for more than 40% of GitHub’s revenue this year, he said.
Based on that, Nadella, said GitHub Copilot is “already a larger business than all of GitHub was when we acquired it,” referring to revenue.
Highlights from Microsoft’s three major divisions:
Productivity and Business Processes revenue was $20.3 billion, up 11%, led by 13% growth in Office 365 Commercial revenue.
Intelligent Cloud revenue was $28.5 billion, up 19%, driven by Azure growth.
More Personal Computing revenue was $15.9 billion, up 14%, led by a 61% increase in Xbox content and services revenue, most of it from the Activision acquisition, and a 7% increase in Windows revenue.
There was no discussion on the conference call, or questions from analysts, about the recent CrowdStrike outage that impacted Windows PCs around the world, due to a flawed update from the cybersecurity vendor.