Software King of the World Microsoft’s earnings surge landed with a dull thud after higher-than-expected spending on data centres and AI kit spooked investors.
Revenue hit $81.3bn for its second fiscal quarter, topping expectations, while the Azure cloud business grew 39 per cent, matching the cocaine nose jobs of Wall Street estimates but slowing slightly from the previous quarter.
Net income came in at $38.5bn, or $5.16 per diluted share, and operating income rose 21 per cent to $38.3bn, both beating projections.
Volish chief financial officer Amy Hood told investors that the limited availability of artificial intelligence hardware is throttling how quickly the cloud business can grow, capping Azure’s revenue potential.
She said Azure’s growth could slow in the current quarter, even though demand continues to outpace supply.
Vole’s shares fell about six per cent in after-market trading once the company published its results. Vole has never had much luck with post-results announcements, even when it pushes huge results.
A chunk of the upside came from its October deal with OpenAI, signed as part of a restructuring that created a for-profit arm where Microsoft owns roughly a 27 per cent stake.
Microsoft said net income was helped by $7.6bn from OpenAI, and even without it the company still beat earnings expectations.
The outfit is racing to build cloud infrastructure used to train and query AI models, and it said in October it would double data-centre capacity in the next two years while spending more than previously projected.
Even with the new investment, Microsoft admitted it will need even more capacity to meet demand, which is a polite way of saying the builders will be busy for a long time.
Analysts said non-AI workloads do most of the work on Microsoft’s bottom line, as businesses keep paying Azure to store, manage and process data and applications.
Microsoft has made $37.5bn in capital expenditures tied to the build-out, more than analysts expected, which is why investors keep watching the gap between Azure growth and the bill for new concrete.
Microsoft director of investor relations James Ambrose said Wednesday that greater infrastructure spending reflects demand for both AI and non-AI workloads.
Stifel analyst Brad Reback said investors want Azure growth to outpace spending and justify the level of investment Microsoft is making.
Microsoft disclosed that about 45 per cent of its remaining cloud commitments come from OpenAI, the first time it has broken out the figure.
That is useful because investors have been trying to determine how much of Microsoft’s AI cloud story rests on the ChatGPT maker and how much is the regular enterprise grind.
Some investors have grown jumpy about the amount of cash being poured into data centres without enough proof AI demand will stay profitable, and Microsoft shares have fallen more than six per cent over the past six months.
Microsoft is building large, interconnected data centres it calls an AI “super factory,” designed for training and high-volume workloads.
On Monday it revealed a new inference chip, Maia 200, which it described as “cheaper and faster at certain tasks than comparable chips made by competitors.”
Microsoft chief executive Satya Nadella wrote recently that AI capabilities have outpaced real-world impact so far, and he repeated the point last week at the World Economic Forum in Davos.
Microsoft is pushing Copilot wider, while diversifying beyond OpenAI models by using Anthropic models for coding and within its 365 productivity offerings.
In November, Microsoft said it would invest up to $5bn in Anthropic, while the start-up committed to buying $30bn in cloud capacity on Microsoft Azure.
