Item 1 of 2 Executive Chairman and CEO of Microsoft Corporation Satya Nadella speaks during the “Microsoft Build: AI Day” event in Bangkok, Thailand, May 1, 2024. REUTERS/Chalinee Thirasupa/File Photo
Shares of the Redmond, Washington-based company fell 3.7% in aftermarket trading, giving up earlier gains.
It forecasts second-quarter Azure growth of 31% to 32%, which falls short of the 32.25% growth that analysts expect on average, according to Visible Alpha.
Revenue from its cloud business Azure rose 33% in the first fiscal quarter, slightly higher than expected. The world’s largest software company beat Wall Street estimates for quarterly revenue and profit and reiterated that demand for its artificial intelligence-powered cloud exceeded capacity.
AI contributed 12 percentage points to Azure’s growth in the quarter ended September 30, compared to 11 percentage points in the previous three-month period.
“We continue to see demand exceeding our current capacity,” said Brett Iversen, Microsoft vice president of investor relations. “The AI opportunity still feels very early.”
The company expects to noticeably deploy AI capacity in the second half of the fiscal year, Iversen said, adding that whether the expansion will address current limitations will depend on demand growth.
Earnings per share were $3.30, compared to the average analyst estimate of $3.10, according to LSEG data.
Revenue rose 16% to $65.6 billion in the first fiscal quarter ended in September, compared with the average analyst estimate of $64.5 billion, LSEG said.
“Microsoft’s clear advantage among the big three (cloud) players is their ability to isolate and talk about AI,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. He said Microsoft’s new reporting format provides transparency on the financial impact of AI services.
BIG AI SPENDING
Microsoft’s heavy capital expenditures to support AI growth have raised concerns among some investors.
The company is the worst performer among Big Tech names this year, with a gain of just over 15%, while Meta is up 68% and Amazon is up 28%.
Microsoft has invested billions in building its AI infrastructure and expanding its data center footprint to alleviate capacity constraints that have hampered its ability to meet the surge in demand for cloud computing.
For the quarter, Microsoft said capital expenditures rose 5.3% to $20 billion, compared to $19 billion in the previous quarter. That was higher than Visible Alpha estimates of $19.23 billion.
Visible Alpha analysts estimate the company will spend more than $80 billion this fiscal year, which started in July. That is an increase of more than $30 billion compared to the last budget year.
Outside of its cloud business, Microsoft reported revenue of $28.3 billion in its productivity business, which includes its Office application suite, 365 Copilot and its AI and voice technology services.
Microsoft’s personal computing unit, home to the Windows operating system and devices including Surface and gaming products including Xbox hardware, content and services, reported a 17% increase in revenue to $13.2 billion.
Sign up here.
Reporting by Deborah Sophia in Bengaluru and Anna Tong in San Francisco; Editing by Anil D’Silva and Rod Nickel
Our Standards: Thomson Reuters Trust Principles.
