Key points:

  • Microsoft continues to grow its Azure cloud platform, despite a slight slowdown in growth.
  • Microsoft shares fell after the release of its cost guidance, reflecting short-term investor concerns.
  • The company’s overall revenue increased, beating analysts’ expectations.

Microsoft has announced a significant increase in investments in its artificial intelligence infrastructure this fiscal year, a move that comes as the company’s cloud business has seen a slowdown in growth.

The move suggests that the payback period for its large investments in the technology may be longer than investors had previously expected.

What happened after the quarterly report?

Despite significant investments in AI, Microsoft shares fell 7% after the company announced its spending guidance. However, the loss narrowed to 4% in the after-hours session after management said its Azure cloud services would accelerate in the second half of fiscal 2025.

The company, like other tech giants such as Alphabet, is investing heavily in expanding its data centers to capitalize on the booming generative AI market. Microsoft reported a significant increase in capital expenditures in the fourth quarter, reaching $19 billion, with the lion’s share of the funds allocated to cloud and AI infrastructure.

The company’s CFO emphasized the need for such large-scale investments to meet the growing demand for AI services. However, she noted the long-term nature of these investments, designed to pay off in 15 years or more.

However, investors who had previously been optimistic about Microsoft’s prospects amid the rise of AI were disappointed by the company’s growth forecasts for Azure, which fell short of analysts’ expectations. Despite this, the company remains confident in its long-term prospects and continues to invest aggressively in innovative technologies.

Microsoft reports slowdown in Azure cloud unit growth

According to the results of the fiscal quarter ended June 30, the growth rate of the Azure cloud platform slowed slightly, amounting to 29% compared to 30.6% predicted by analysts. This indicates some stabilization of the growth dynamics after several quarters of accelerated development.

Despite the general slowdown, it should be noted that it was artificial intelligence services that became the main driver of Azure revenue growth in the reporting period. Their contribution to the increase in revenue amounted to 8%, which is one percentage point higher than the previous quarter.

The company continues to demonstrate confident growth rates of the Azure AI client base, which exceeded the 60 thousand client mark, increasing by almost 60% compared to the same period last year. In addition, there is a steady trend towards an increase in average spending per client, which indicates an increase in the value of the services provided and a strengthening of the company’s position in the market.

Despite everything, Microsoft shows steady growth

Microsoft Corporation demonstrated impressive results for the past quarter, which was the result of significant investments in promising technologies, in particular, artificial intelligence. A significant contribution to achieving these results was made by technologies developed by OpenAI, in which Microsoft invested about $13 billion. One of the striking examples of the successful application of these technologies was the launch of the 365 Copilot virtual assistant, designed to improve the productivity of corporate users.

The business unit, which combines the Office suite of applications, the professional social network LinkedIn and the innovative assistant 365 Copilot, demonstrated outpacing growth, exceeding analysts’ expectations by 1%.

The Intelligent Cloud division, which includes the Azure cloud platform, also demonstrated positive growth dynamics, although it did not reach the analysts’ consensus forecast. Revenue of this division increased by 19%, reaching $28.5 billion. Despite a slight deviation from forecasts, the company continues to strengthen its position in the fast-growing cloud services market.

Overall, Microsoft demonstrated strong growth in all key business segments. The company’s total revenue increased by 15%, reaching $64.7 billion, which exceeded analysts’ expectations. Positive dynamics are also observed in the personal computer segment, where the company was able to take advantage of the market stabilization and increase its share.