Microsoft anticipated a rise in expenditure on artificial intelligence for the current quarter, yet foresaw a deceleration in growth within its cloud service, Azure. This indicates that substantial investments in AI alone may not be sufficient to match the capacity limitations at its data centers. Shares of the company headquartered in Redmond, Washington, experienced a decline of 3. 6% in after-hours trading, relinquishing previous advancements.
The company exceeded the revenue and profit estimations set by Wall Street for the first quarter. Facebook-owner Meta, which disclosed results surpassing analyst projections, also cautioned about the “significant acceleration” in expenses related to Artificial Intelligence (AI) infrastructure, leading to a 3. 1% decline in its share price during after-market trading. Brett Iversen, the Vice President of Investor Relations at Microsoft, reiterated that Microsoft will not be able to address AI capacity constraints until the second half of its fiscal year. Microsoft predicted that Azure revenue growth in the second quarter would range between 31% and 32%, which falls slightly below the analysts’ average forecast of 32. 25%, as reported by Visible Alpha.
Azure revenue increased by 33% in the fiscal first quarter that concluded in September. Thirty, slightly ahead of estimates. AI contributed 12 percentage points to Azure’s growth in the first quarter, in contrast to the 11 percentage points registered in the preceding three-month period. Microsoft has invested significant resources in constructing its artificial intelligence infrastructure and extending its data-center presence. For the quarter, Microsoft indicated that capital expenditures increased by 5. 3% to $20 billion, as opposed to $19 billion in the preceding quarter. The figure surpassed Visible Alpha’s estimates of $19. 23 billion. Its substantial expenditure has sparked apprehensions among certain investors (Microsoft Forecasts).
The company has been the poorest performing entity among prominent technology companies this year, with an increase of just over 15%. In comparison, Meta has experienced a remarkable surge of 68%, and Amazon. com has seen a rise of 28%. According to analyst estimates provided by Visible Alpha, Microsoft is projected to allocate more than $80 billion during this fiscal year, commencing in July. That constitutes an increment exceeding $30 billion from its previous fiscal year.
Microsoft is intensifying a capital expenditure battle in which it may not emerge victorious.
“The level of investment is significantly high; it has had a substantial negative impact on free cash flow and will continue to exert a significant drag on margins in the future,” stated Gil Luria, the head of technology research at D. A.
Davidson.
Microsoft’s competitor Google has profited from the expansion of artificial intelligence. On Tuesday, Alphabet announced that artificial intelligence (AI) played a pivotal role in propelling a 35% increase in its cloud business. The shares experienced an increase of more than 2. 8% at the close of trading on Wednesday, subsequently declining by 0. 4% following the close of the market.
