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Microsoft Anticipates Slow Pay Off from AI Expenditures

CIO Insider Team | Wednesday, 31 July, 2024
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Microsoft anticipates that its hefty AI expenditures may not pay off soon, as its quarterly growth for its Azure cloud platform might rise above projections and that capital spending will increase this fiscal year.

Reports say that its shares dropped by seven percent, yet they seemed to have shown fast recovery to trade down three percent after the company announced that Azure growth will pick up speed in the second half of fiscal 2025.

Microsoft appears to be in the lead of profiting from generative artificial intelligence thanks to the boost from its partnership with OpenAI.

It has even been making significant investments in its pursuit to double the number of data centers.

While the same, the tech giant anticipates that its Azure might grow one percent from 28 percent on a constant-currency basis in July-September.

Azure’s 29 percent revenue growth is observed to be less than the anticipated 30.6 percent increase in the fiscal fourth quarter that concluded on June 30.

Microsoft claims that the funds was required to grow its worldwide data center network and get beyond capacity issues that were impeding its attempts to meet the demand for artificial intelligence.

On the other side, it appears that shares of other major tech companies were affected by the underwhelming growth. In prolonged trading, investors sold off shares of Meta Platforms and Amazon.com, fearing that the billions of dollars Big Tech was spending on AI infrastructure would not yield much profit in the near future.

Over the last 12 months, Microsoft's stock has increased by almost 25%. However, since reaching a record high on July 5th, they have lost 10 percent of their value amid a wider market selloff that was primarily fueled by megacap firms. This is in response to Tesla's dismal earnings and Alphabet's prediction of more spending.

The maker of Windows increased its spending significantly in the fourth quarter, with capital expenditures, which include finance leases, climbing 77.6% to $19 billion. This represents a significant increase from the $14 billion the company reported in the preceding three months.

Microsoft claims that the funds was required to grow its worldwide data center network and get beyond capacity issues that were impeding its attempts to meet the demand for artificial intelligence.

According to LSEG statistics, revenue from its Intelligent Cloud unit, which is home to the Azure cloud computing platform, increased 19% to $28.5 billion overall in the fourth quarter, falling short of analysts' projections of $28.68 billion.



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