Microsoft (MSFT, Financial) reported a slowdown in its cloud computing growth despite ongoing investments in AI infrastructure. Azure's cloud revenue increased by 31% in the last quarter of 2024, compared to 34% in the previous quarter, slightly below analysts' expectations of 32% growth.
Microsoft is considered a leader in AI commercialization due to its collaboration with OpenAI, the company behind ChatGPT. Despite launching several AI assistants under the Copilot brand, the company has taken longer than anticipated to convert these innovations into revenue.
Like competitors Google and Amazon, Microsoft has significantly increased its spending, focusing on chips and data centers necessary for power-intensive AI services. The company plans to invest $80 billion in AI data centers this fiscal year, a move that has raised concerns on Wall Street about its necessity. This skepticism was fueled by the release of a new open-source AI model by Chinese startup DeepSeek, comparable in performance to U.S. models but at a fraction of the cost.
Microsoft's capital expenditure for the quarter reached $22.3 billion, surpassing analysts' expectations of $21 billion. The company's total revenue rose by 12% to $69.6 billion, with earnings per share at $3.23, both exceeding forecasts.
Azure's revenue growth in the second quarter included a 13-point contribution from AI, up from 12 points in the first quarter. If sustained, AI could contribute $13 billion annually. Despite these figures, Microsoft's shares fell about 4% in after-hours trading, with a slight rebound following.
