Microsoft’s Cloud Growth Slows, Indicating Delayed Ai Returns
Microsoft Cloud growth slows
Microsoft announced plans to increase spending this fiscal year to expand its AI infrastructure, despite a slowdown in its cloud business. This move suggests that the anticipated returns from significant investments in AI may take longer to materialize than Wall Street had anticipated. Following the spending forecast, Microsoft’s shares dropped by 7%, but losses were later reduced to 4% after the company stated during a post-earnings call that growth for its Azure cloud services is expected to pick up in the latter half of fiscal 2025.
Microsoft's Azure Growth Falls Short of Expectations, Sparking Investor Concerns Over AI Investment
Amy Hood, Group CFO at Microsoft, emphasized that the increased spending was essential to meet the growing demand for AI services, with investments aimed at assets expected to generate returns over the next 15 years and beyond. However, investors, who had driven up Microsoft’s stock by nearly 25% over the past year due to AI enthusiasm, were disheartened by the reported Azure growth. Microsoft forecasted a 28% to 29% increase in Azure’s business for the July-September quarter on a constant currency basis, falling short of the 29.7% growth projected by Visible Alpha.
This came after a 29% increase in Azure’s business for the quarter ending June 30, which fell short of the anticipated 30.6% and represented a deceleration from the previous quarter. Daniel Morgan, senior portfolio manager at Synovus Trust, which holds Microsoft shares, commented, “Investors have little patience. They see significant spending and expect to see a corresponding rise in revenue.”
Microsoft's AI Push and Mixed Financial Performance: Azure Growth Slows, but Productivity and Personal Computing Segments Shine
If these companies don’t exceed expectations significantly, they will face setbacks,” he added. Although Azure’s overall growth has slowed, AI services contributed a greater share to the revenue increase in the June quarter, accounting for 8 percentage points compared to 7 percentage points in the prior quarter. Microsoft does not disclose the exact revenue figures for Azure, which stands to benefit the most from the surging interest in AI. CEO Satya Nadella noted that Azure AI is now utilized by over 60,000 customers, marking a nearly 60% increase year-on-year, and that the average expenditure per customer continues to rise.
Satya Nadella has led Microsoft in a major push to integrate AI across its entire product range, including the Bing search engine and productivity tools like Word. Much of this initiative has been supported by technology from OpenAI, in which Microsoft has invested approximately $13 billion, including the development of the 365 Copilot assistant for businesses.
The productivity sector, which includes the Office suite, LinkedIn, and 365 Copilot, saw an 11% growth, surpassing the expected 10%. Meanwhile, the Intelligent Cloud division, which encompasses the Azure cloud platform, reported a 19% revenue increase to $28.5 billion for the fourth quarter. This fell short of analysts’ predictions of $28.68 billion, according to LSEG data.
Microsoft, often viewed as a key indicator for the tech industry due to its diverse operations, announced a 15% rise in total revenue to $64.7 billion for the fourth quarter, slightly exceeding the forecasted $64.39 billion. Revenue from the personal computing segment, which includes Windows and devices such as Xbox and Surface, grew by 14%, benefiting from a recovery in personal computer sales. The PC market experienced growth for the second consecutive quarter during the April-June period, as reported by research firm IDC.
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Thane Professor Sentenced to 3 Years for Harassing MBBS Trainees
