Microsoft Corp’s spending surged to a record high and cloud sales growth slowed, sending the shares down sharply amid investor concerns that it could take longer than expected for the company’s artificial intelligence (AI) investments to pay off.
Capital expenditures for the fiscal second quarter ended on Dec. 31 hit US$37.5 billion, up 66 percent from a year earlier and exceeding analyst estimates for US$36.2 billion.
The Azure cloud-computing unit posted a 38 percent revenue gain during the quarter when adjusting for currency fluctuations, just meeting analysts’ projections. That growth rate slowed — by a percentage point — from the prior quarter. The company expects Azure sales to rise 37 percent to 38 percent in the current quarter.
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Microsoft shares fell about 7 percent in extended trading after closing at US$481.63 in New York on Wednesday.
“One of the core issues that is weighing on investors is that capex is growing faster than we expected, and maybe Azure is growing a little bit slower than we expected,” Morgan Stanley analyst Keith Weiss said during an analysts’ call. Investors, he said, were concerned about the return on that spending.
Microsoft chief financial officer Amy Hood responded by saying that a chunk of cloud capacity is going toward internal teams, which boosts products such as Copilot. Had all of the new capacity gone toward Azure, the growth rates would have been notably higher, she said.
The world’s largest software maker has experienced rapid growth in its cloud computing business, thanks in part to a landmark partnership with leading AI start-up OpenAI. But despite spending heavily on data centers, Microsoft has struggled to get capacity online quickly enough to meet demand.
Microsoft has been rushing to bake AI tools, including those powered by OpenAI, into its products, betting that chatbots and automation technology will boost sales of the company’s productivity software and cloud services.
During the analyst call, Microsoft chief executive officer Satya Nadella said companies are now paying for 15 million subscriptions to the M365 Copilot, Microsoft’s main AI tool for office workers. Adoption is growing among the company’s enormous base of corporate users, Nadella said.
Total sales increased 17 percent year-on-year to US$81.3 billion during the quarter, while profit was US$5.16 a share, the company said in a statement on Wednesday. The net income figure was boosted by gains from Microsoft’s investment in OpenAI, which lifted per-share earnings by US$1.02.
Analysts had expected sales of US$80.3 billion and per-share earnings of US$3.92.
The value of commitments from customers that Microsoft expects to materialize as sales in future years more than doubled from a year earlier, primarily the result of a new, US$250 billion deal with OpenAI. The start-up accounted for 45 percent of Microsoft’s backlog, which stood at US$625 billion at the end of December.
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