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Microsoft said its capital spending rose 77.6 per cent to US$19 billion in its fiscal fourth quarter that ends June 30, with cloud and AI-related spending accounting for nearly all of the expenditures. For all of fiscal 2024, capital spending totalled US$55.7 billion.
Group CFO Amy Hood said the spending was necessary to support demand for AI services and the company was investing in assets that “will be monetised over 15 years and beyond.”
Still, investors who have run up Microsoft stock by nearly a quarter in the past 12 months on AI optimism were disappointed with the Azure growth.
Microsoft predicted that the business would grow 28 per cent to 29 per cent on a constant currency basis in the July-September quarter, compared with estimates of 29.7 per cent, according to Visible Alpha.
That followed a 29 per cent rise in the quarter ended June 30, which was below estimates of 30.6 per cent and marked a slowdown from the previous three months.
“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,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which holds shares in Microsoft.
“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,” he added.
While overall Azure growth slowed, AI services accounted for a larger portion of the increase in revenue in the June quarter at 8 percentage points, compared with 7 percentage points in the previous quarter.
The company does not break out the absolute revenue figure for Azure, the part of its business best situated to capitalise on booming interest in AI.
Microsoft CEO Satya Nadella said that Azure AI was now used by more than 60,000 customers, up nearly 60 per cent year on year and that the average spend per customer continues to grow.
Nadella has pushed the company to go all-in on the technology, weaving AI into almost every product from search engine Bing to productivity software such as Word.
Large parts of those efforts have been fuelled by technology from OpenAI, in which Microsoft has invested about US$13 billion, including the 365 Copilot assistant for enterprises.
The productivity business – home to the Office suite of apps, LinkedIn and 365 Copilot – posted growth of 11 per cent, compared with expectations of 10 per cent.
Revenue from its Intelligent Cloud unit – home to the Azure cloud-computing platform – rose 19 per cent to US$28.5 billion in the fourth quarter, missing analysts’ estimates of US$28.68 billion, LSEG data showed.
Microsoft – seen as a bellwether for the tech industry thanks to its wide-spanning business – said total revenue rose 15 per cent to US$64.7 billion in the fourth quarter. Analysts had expected US$64.39 billion, according to LSEG data.
Revenue from its personal computing business, which includes Windows and devices such as the Xbox and Surface computers, grew 14 per cent as Microsoft benefited from stabilising personal computer sales. The PC market grew for the second straight quarter in the April-June period, according to research firm IDC.
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