Microsoft's Cloud Growth Slowdown Raises Investor Concerns Amid AI Push

Microsoft's Cloud Revenue Disappoints But Satya Nadella Remains Committed to A.I. Spending

The company is spending billions to develop data centers around the globe and acquire A.I. chips. Microsoft (MSFT) is going all in on A.I. The world's most valuable company yesterday (July 30) reported capital expenditures (CapEx) of $19 billion for the April-June quarter, up 78 percent from a year ago. The majority went towards cloud and A.I.-related projects. "We know how to manage our CapEx spend to build out a long-term asset," Microsoft CEO Satya Nadella told analysts when asked whether Microsoft's A.I. investments will soon pay off. Sign Up For Our Daily Newsletter Sign Up Thank you for signing up! By clicking submit, you agree to our <a href="http://observermedia.com/terms">terms of service</a> and acknowledge we may use your information to send you emails, product samples, and promotions on this website and other properties. You can opt out anytime. See all of our newsletters The company's Intelligent Cloud unit, which includes the Azure cloud computing platform alongside Github, server products and enterprise services, generated $28.5 billion in quarterly revenue, up 19 percent from a year ago but narrowly missing Wall Street expectations. Surpassing analyst estimates, however, were Microsoft's total revenue and net income, which increased by 15 percent and 10 percent respectively to $64.7 billion and $22 billion. Microsoft shares were down by more than 1.6 percent as of this morning. Roughly half of the $19 billion capital expenditures went towards infrastructure needs, namely Microsoft's efforts to build and lease data centers powering its A.I. models. These efforts "will support monetization over the next 15 years and beyond," said Microsoft's chief financial officer Amy Hood during yesterday's earnings call. The remainder was used to acquire servers consisting of both graphics processing units (GPUs) and central processing units (CPUs), she said. Microsoft attempts to ease investor concerns over spending In an attempt to ease concerns surrounding Microsoft's aggressive A.I. spending, including a $13 billion partnership with OpenAI, Nadella noted the importance of managing to "capture the opportunity." In addition to highlighting Microsoft's new A.I. chip purchases from Nvidia (NVDA) and AMD (AMD), he lauded the company's investments in data centers across four continents as "long-term assets around the world to drive growth for the next decade and beyond." Microsoft's Azure unit and other cloud services revenue grew 29 percent during the quarter, 8 percent of which can be attributed to the company's A.I. services. The company expects Azure growth to accelerate in the second half of the year "as our capital investments create an increase in available A.I. capacity to serve more of the growing demand," said Hood. Azure A.I. is now used by 60,000 customers, according to Nadella, representing a 60 percent increase from the year prior. Meanwhile, Microsoft's integration of its Copilot A.I. assistant on GitHub has contributed to more than 40 percent of growth this year for the developer platform. And the use of Copilot for Microsoft 365 products has grown by 60 percent in a year. In light of Microsoft's predictions for continuing progress across its Intelligent Cloud segment and Copilot user growth, Wall Street will be "digesting a very upbeat commentary about A.I. deployments," said Wedbush Securities analyst Dan Ives in an investor note. Microsoft also reported growth across its Productivity and Business Processes unit, which encompasses Office, LinkedIn and Dynamics, noting an 11 percent increase in revenue to $20.3 billion. And the company's More Personal Computing unit, which includes Surface devices, Windows and Xbox gaming consoles, brought in $15.9 billion, representing a 14 percent increase year-over-year. This segment includes Microsoft's first A.I. computer lineup, Copilot+ PCs, launched in June. "We are delighted by early reviews," Nadella told analysts, adding that "we look forward to the introduction of more Copilot+ PCs powered by all of our silicon and OEM partners in the coming months."

Microsoft's cloud service growth slows, testing investors' patience

Microsoft's Azure cloud-computing service posted a slowdown in quarterly growth, testing the patience of investors anxious to see a payoff from huge investments in artificial intelligence products. Revenue from Azure, Microsoft's main growth engine in recent years, rose 29% in the fiscal fourth quarter, compared with a 31% jump in the previous period. About 8 percentage points of the increase in the recent period was attributable to AI, up from 7 percentage points in the prior quarter. "It was really about the cloud services number -- it needed to just be a little higher," Doug Clinton, a managing partner at Deepwater Asset Management, said on Bloomberg Television. Still, the accelerated contribution from AI confirms business momentum with that emerging technology, wrote Raimo Lenschow, an analyst at Barclays. Chief Executive Officer Satya Nadella has been infusing Microsoft's product line with AI technology from partner OpenAI, including digital assistants called Copilots that can summarize documents and generate computer code, emails and other content. The company also is selling Azure cloud subscriptions featuring OpenAI products. Alongside rivals like Amazon and Google, Microsoft has been spending billions to construct new data centers to meet demand for cloud computing and power-hungry AI services. On a call with analysts Tuesday, Chief Financial Officer Amy Hood said that although Azure growth will continue to slow in the current quarter, which ends in September, investments in data centers and servers will let the company capitalize on demand and accelerate Azure growth in the second half of fiscal 2025. Microsoft shares fell less Wednesday. As of the Tuesday close, the stock had gained about 12% in 2024. In the fourth quarter, which ended June 30, capital expenditures -- closely watched by investors as the company embarks on its historic AI build-out -- jumped to $19 billion, including server farm leases, from $14 billion in the previous quarter. That number will increase in the new fiscal year, Hood said. In an interview, investor relations chief Brett Iversen said Microsoft currently lacks sufficient capacity to fulfill customer demand for cloud and AI services. "We're building out for that as quickly as we can," he said. In recent weeks, skittish investors have signaled impatience with tech companies' efforts to profit from their massive investments in AI. Last week, the shares of Google parent Alphabet sank after the company surprised Wall Street with sharply higher costs that overshadowed strong sales. Many of Microsoft's corporate customers are only just starting to use new AI assistants, which still struggle to understand the context of some requests and handle commands involving multiple apps. The Copilot service, which doubles the cost of a monthly subscription to about $60 per user for corporations, is expected to eventually generate a robust flow of recurring revenue. Iversen said customers are increasingly adopting the company's higher-tier Office 365 product, which includes generative AI features. Sales from commercial cloud products including Azure and office applications rose 21% to $36.8 billion, Microsoft said, about in line with Wall Street estimates. Total revenue in the fourth quarter increased 15% to $64.7 billion, while adjusted profit was $2.95 a share, the company said in a statement Tuesday. Analysts on average estimated sales of $64.5 billion and per-share earnings of $2.94. On the call, Nadella said the number of people using Copilot at work doubled quarter-over-quarter. Use of Copilot within GitHub, which allows for AI assistance in software development, accounts for 40% of revenue growth within that business, he added. The company's Xbox video-gaming unit posted 61% growth in content and services revenue, much of that fueled by the $69 billion purchase of Activision Blizzard, which was completed in October. Hours before reporting its financial results, Microsoft's Azure and Office 365 services suffered partial outages, which also took down services by customers including Starbucks. Just a couple of weeks earlier, some 8 million computers running Microsoft's Windows operating system crashed after the cybersecurity firm CrowdStrike Holdings Inc. released a flawed software update. Though the outage was caused by CrowdStrike, "Microsoft may still have to deal with negative perception around perceived vulnerabilities to its operating system," Tyler Radke, an analyst at Citigroup, wrote ahead of earnings. Nadella touted progress in the company's cybersecurity products during the call with investors. The company says it has more than 1.2 million security customers, and Defender for Cloud, a security product, passed $1 billion in revenue over the past year. "We continue to prioritize security above all else," Nadella said.

Microsoft's Azure posts slowdown in growth, testing investors' patience

"It was really about the cloud services number -- it needed to just be a little higher," Doug Clinton, a managing partner at Deepwater Asset Management, said on Bloomberg Television. Still, the accelerated contribution from AI confirms business momentum with that emerging technology, wrote Raimo Lenschow, an analyst at Barclays. Chief Executive Officer Satya Nadella has been infusing Microsoft's product line with AI technology from partner OpenAI, including digital assistants called Copilots that can summarize documents and generate computer code, emails and other content. The company also is selling Azure cloud subscriptions featuring OpenAI products. Alongside rivals like Amazon.com Inc. and Google, Microsoft has been spending billions to construct new data centers to meet demand for cloud computing and power-hungry AI services.

Microsoft sees shares fall back as cloud growth slows down

Shares slip as the quarterly earnings report shows a slowdown in growth in core business Azure while capital expenditure rises amid the AI build. Microsoft has reported its fourth-quarter earnings for the fiscal year 2024, surpassing analysts' estimates. However, its shares dropped by more than 3% in after-hours trading due to the disappointing growth pace in Azure cloud services, seen as the core segment supporting the tech giant in competing against its artificial intelligence (AI) rivals. Furthermore, the world's second-largest company increased spending on data centre construction, causing investors to be concerned about its profit margins. Microsoft reported earnings per share of $2.95 (€2.72) on revenue of $64.7bn (€59.56 billion), surpassing analyst estimates of $2.94 and $64.5bn, respectively. The sales revenue rose by 15% from a year ago, slowing from the 17% growth in the March quarter. Net income amounted to $22bn (€20.3bn), up 10% from the same quarter last year. "We closed out our fiscal year with a solid quarter, highlighted by record bookings and Microsoft Cloud quarterly revenue of $36.8bn, up 21% (up 22% in constant currency) year-over-year," CFO Amy Hood said during the earnings call. Cloud business contributed 57% of its total revenue, which is critical for the company's growth. Despite exceeding expectations on both revenue and net income, the growth of its key metric, revenue from intelligent cloud, including Azure, fell short of market expectations. The segment's sales were $28.5bn (€26.24bn), below the estimated $28.7bn. Azure and other cloud services grew by 29%, missing analysts' forecast of 31%. This also marks the slowest growth in the past three quarters. On a positive note, AI contributed about 8% of the increase in that segment, up from 7% in the previous quarter and 6% in the final quarter of 2023. Azure Cloud holds the second place for global market share, behind Amazon Web Services (AWS) and followed by Google Cloud. Otherwise, all other divisions have shown growth and surpassed consensus expectations. The productivity and business process unit, which includes Office 365 and LinkedIn, generated revenue of $20.32bn (€18.71bn), up 11% from a year ago. The more personal computing segment, including Windows operating systems, gaming, devices, and search advertising, reported revenue of $15.9bn (€14.64bn), representing a 14% growth from the same quarter last year. Notably, gaming revenue surged by 61%, driven by a 58% growth of the Activision acquisition. However, device revenue decreased by 11% as the company continued to focus on higher-margin premium products. The company started selling surface PCs integrated with its Copilot+ running AI models in the June quarter. In the March quarter, it began selling Copilot access to small businesses, along with Microsoft 365 productivity software subscriptions. However, the company's capital expenditure has surged to $19 bn (€17.5 bn) from $16bn in the March quarter. Microsoft faced capacity challenges as Hood mentioned in the fiscal third-quarter earnings call, which required increased investment in the data centre build amid meeting the fast-growing AI training demands. In the company's Forward-Looking Statements, it noted that "significant investments in products and services that may not achieve expected returns". CEO Satya Nadella said: "As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era."

Microsoft fails to impress with cloud service earnings

Despite a solid quarter, a slowdown in Azure growth is raising concerns around Big Tech's massive investments into AI infrastructure and if they will pay off. Microsoft has posted a steady quarter with revenue up by 15pc, but the company's cloud sector growth did not meet expectations and caused a dip in its share price. The company's fourth quarter results show it made $64.7bn in revenue and a net profit of $22bn, up by 10pc year-over-year. Microsoft has grown to be the most valuable company in the world, boosted significantly by its investments in cloud services and AI. Satya Nadella, chair and CEO of Microsoft, said the latest results showed "strong performance" thanks to its innovation and the "trust customers continue to place in Microsoft". "As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era," Nadella said. But that customer trust took a hit from the results of its cloud division, particularly Azure and other cloud services which grew by 29pc in the latest quarter. This is slower growth than previous quarters and was below analyst expectations according to Reuters. The slowing growth in this division highlights concerns about the massive investments companies like Microsoft have made into data centres in their attempts to build up AI services. Meanwhile, major tech companies including Microsoft saw their stocks fall recently as concerns from recent earnings results are growing. Microsoft has been a major investor into OpenAI, one of the key companies behind the generative AI craze the world has witnessed in recent years. But recent reports suggest OpenAI is burning through billions of dollars to stay afloat, raising fears that the company could go bankrupt. Forrester principal analyst Lee Sustar said customers got "some assurance" about whether Microsoft's AI investments are still hauling in revenue. "Given Microsoft's record in recent years, Wall Street hasn't much cared that precise Azure numbers aren't disclosed," Sustar said. "However, the company noted that operating expenses for Intelligent Cloud grew 5pc compared to the same period a year earlier due to the scale-out of AI infrastructure in Azure. "Investors and Azure customers will be keeping an eye on that trend as an indicator of AI market success for Microsoft and the cloud providers generally." Microsoft has been connected to various high-profile cyberattacks and outages, including the Crowdstrike outage earlier this month that disrupted services around the globe. Microsoft's cloud services also appear to have been recently impacted by a cyberattack. Meanwhile, some have issue with Big Tech players such as Microsoft gaining too much control in the cloud market. Earlier this year, Mark Boost, the CEO of cloud computing company Civo said hyperscalers are benefitting from "anti-competitive practices" such as "combining enticing free credit schemes with excessive egress fees". Find out how emerging tech trends are transforming tomorrow with our new podcast, Future Human: The Series. Listen now on Spotify, on Apple or wherever you get your podcasts.

Microsoft Profit Jumps 10%, but Cloud Computing Grows Slower Than Expected

Microsoft closed its first full fiscal year of aggressive artificial intelligence investment with a mixed bag of results for people worried about how much big tech companies are spending on A.I. Sales from April through June hit $64.7 billion, up 15 percent from the same period last year, the company reported on Tuesday. Profit rose 10 percent, to $22 billion. The results beat Wall Street's expectations and Microsoft's own predictions. But the company's cloud computing business did not grow as quickly as investors had expected, leading its share price to drop more than 6 percent in after-hours trading. Azure, Microsoft's flagship cloud computing product that includes A.I. services, grew 30 percent in the quarter after taking into account currency fluctuations. Investors had been hoping it would grow between 30 and 31 percent, as Microsoft had told them to expect. The earnings report showed how the company is spending mightily to build the data centers and acquire the pricey chips that power A.I. technology. Microsoft's capital expenses have grown every quarter since late 2022, when its chief executive, Satya Nadella, pushed his top executives to make big investments in A.I. Microsoft spent almost $19 billion on capital expenses last quarter, more than twice as much as two years earlier. Investors have turned their attention to Microsoft's spending after Alphabet, Google's parent company, reported slowing growth and a 91 percent increase in capital expenses, prompting a sell-off in technology stocks last week.

Microsoft cloud unit miss dulls bright earnings

San Francisco (AFP) - Microsoft shares slipped Tuesday after the tech giant reported quarterly profit climbed but its crucial cloud computing unit missed expectations. Microsoft said it made a profit of $22 billion on $64.7 billion in revenue in the recently ended quarter, up from the same period a year earlier. Cloud unit revenue of $36.8 billion, however, disappointed investors and shares slid more than five percent to $401.06 in after-market trades. Money brought in from cloud computing has driven blockbuster earnings quarter after quarter, and a hint that stellar growth may be slowing was enough to give investors pause. Microsoft is among the major contenders in the fierce race to build out artificial intelligence systems, pouring billions of dollars into the technology in the hope it will pay off. Microsoft is among the best positioned to monetize generative AI, having moved the fastest to implement it across all its products, and pouring $13 billion into OpenAI, the start-up stalwart behind ChatGPT. Winning the big bet on AI is "crucial" for the group, said Jeremy Goldman of Emarketer, "but the market is willing to give them a level of patience." The AI frenzy has helped Microsoft's cloud computing business grow in the double digits, which analysts said could be hard to sustain. "This type of growth cannot hold forever, but the synergies between cloud and AI make it more likely that Microsoft holds onto reliable cloud growth for some time to come," Goldman said. Revenue from Microsoft's AI-infused "Intelligent Cloud" unit was $28.5 billion, a 19-percent increase from the same quarter a year earlier, according to the earnings figures. Microsoft's "Azure" drove a strong increase in revenue from server products and cloud services, according to the company. "We closed out our fiscal year with a solid quarter, highlighted by record bookings and Microsoft Cloud quarterly revenue," Chief Financial Officer Amy Hood said in an earnings release. Microsoft Chief Executive Satya Nadella added that the company is "focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era." Microsoft reported a net income of $88.1 billion for its fiscal year on revenue of $245.1 billion, up 22 percent and 16 percent respectively. Money taken in by Microsoft's Xbox video game unit leaped 61 percent, boosted by the acquisition of Activision, according to earnings figures. Microsoft said costs to attract visitors to its search and news services rose 19 percent, as it enhanced services with AI to better compete with Google.

Microsoft beats revenue forecasts but poor performance of cloud services drags share price

Firm's earnings were up 15% year-on-year, but Azure's lower returns resulted in share prices falling by as much as 7% Microsoft outperformed analyst predictions in its latest quarterly earnings report, revealing on Tuesday that its revenue was up 15% year-over-year. But growth of the company's closely watched Azure cloud computing services failed to meet expectations and shares in Microsoft fell as much as 7% in after-hours trading. The company was expected to report steady growth in its fourth quarter earnings report, mostly on the back of its cloud services. Revenue from those services grew 29%, lower than the 30% to 31% that analysts predicted, resulting in a sell-off that exacerbates big tech's recent market woes. In Microsoft's earnings report, Satya Nadella, the CEO, sought to bolster confidence in the company's performance. "Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft," said Nadella in the earnings statement. "As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era." Microsoft has invested billions in artificial intelligence in recent years, as part of a bet that AI-enabled services will dominate the tech industry. And the company threw its weight behind ChatGPT maker OpenAI, further cementing itself as a central player in the commercialization of generative AI. But as the dust in the AI sector settles, there are growing questions about whether big tech's pivot to AI will be able to yield the sort of revenue boosts that these companies have touted. Meanwhile, factors including speculation over a Federal Reserve cut to interest rates has led investors to cool their enthusiasm for big tech after a long period of optimism over AI and surging stock prices. Both Tesla and Alphabet's share prices fell abruptly following the release of their earnings reports last week, while Microsoft's share price has fallen from the high point it reached in early July. Microsoft was also at the center of the global tech outage this month that grounded thousands of flights and caused billions of dollars in turmoil across industries. The cybersecurity firm CrowdStrike sparked the outage by pushing a faulty software update to Windows systems, causing them to crash en masse. A much smaller and unrelated outage hit Microsoft's Azure cloud service earlier on Tuesday, causing network connection issues in several countries.

Strong Microsoft results dampened by slight miss on cloud sales - SiliconANGLE

Strong Microsoft results dampened by slight miss on cloud sales Microsoft Corp. shares fell 3% in after-hours trading as cloud computing revenue slightly undershot analysts' estimates. Consistent with Alphabet Inc.'s announcement last week that it was sharply increasing its investments in cloud infrastructure to support artificial intelligence, Microsoft said it spent $13.9 billion to build out data centers and computing infrastructure for AI processing, up 55% from the same quarter last year. The company said the increased expenditures were merited by higher AI-driven revenue, with demand continuing to outstrip supply. Cloud revenue increased 21%, while overall revenue rose 15%. Sales in the intelligent cloud segment rose 19% to $28.52 billion, with Azure revenue growing 29%. However, the figure was slightly below the $28.72 billion analysts had expected. Chief Financial Officer Amy Hood attributed the cloud segment's slight underperformance to "softness in a few European geographics on non-AI consumption." She said the company expects that trend to continue into the first half of fiscal 2025. Earnings per share rose 9% to $2.95 from $2.69 a year ago and beat estimates of $2.93. Total revenue rose 16% in constant currency terms to $64.73 billion, slightly ahead of expectations of $64.44 billion. view. Net income in the quarter was $22 billion, up 10%. "We are building out the application server infrastructure for the AI wave," said CEO Satya Nadella. He reeled off a list of related growth statistics, including 60% growth in the number of Azure AI customers to 60,000 and 50% growth in the number of AI customers who also use Microsoft analytics tools. GitHub is on a $2 billion run rate, up 40% year-over-year and over 480,000 organizations have used Microsoft's in-platform AI capabilities. The number of people using a Microsoft copilot doubled quarter-over-quarter, Nadella said. Nucleus Research Inc. Senior Analyst Alexander Wurm said he believes Azure performance was stronger than the numbers indicate. Among software-as-a-service companies that account for a significant share of cloud spending, "We're seeing an emphasis on the efficiency of the workloads running on Azure," he said. "The number is growing but the cost per workload is going down or remaining stagnant." That masks actual growth in Azure use. Wurm noted comments by Microsoft executives that demand for Azure services was greater than capacity and that AI computing capacity is still constrained. "As long as that is the case they'll continue to increase their capital expenditures," he said. Hood told analysts to expect 28% to 29% growth in Azure the next fiscal quarter. Hood noted that commercial bookings were up 17%, which was "well ahead of expectations." Commercial remaining performance obligations increased 21% to $269 billion and cash flow from operations of $119 billion exceeded $100 billion for the first time. Wurm said he expects customer spending on AI to accelerate as early tests move into the production stage. "We're seeing two main AI use cases: internal projects to make the workforce more productive and external cases delivering services with AI," he said. "Those external use cases take time to catch on. I took away from executives' remarks that they expect the second half to be the turnaround on external uses," with AI revenues likely accelerating as a result. On a segment basis, productivity and business processes sales grew 11% to $20.32 billion on gains in Office 365 commercial and LinkedIn. The "more personal computing" segment grew 15% to $15.9 billion on stronger Windows and Xbox sales. Revenue in Productivity and Business Processes grew 12% in constant currency to $20.3 billion with Office Commercial products and cloud services revenue up 13%. Dynamics products and cloud services revenue increased 16% on Dynamics 365 revenue growth of 20%. For the fiscal year ended June 30 total revenue was $245.1, up 15% and operating income was of $109.4 billion was up 21%. Net income of $88.1 billion grew 20%.

Microsoft stock is falling after an AI sales disappointment

Microsoft's AI expenses caused it to spend more money than analysts expected in its fiscal fourth quarter. At the same time, its AI sales disappointed. Microsoft reported quarterly capital expenditures of $13.9 billion -- 55% higher than the year before and $200 million higher than the $13.7 billion projected by analysts polled by FactSet. Sales in its Intelligent Cloud unit hit $28.7 billion, just below analysts' expectations. Overall revenue across Microsoft's divisions surpassed Wall Street estimates, hitting $64.7 billion. "Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft," said CEO Satya Nadella in a statement Tuesday. "As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era." Wall Street is becoming more cautious about the massive costs of AI infrastructure. Investors reacted poorly to Google and Tesla's hefty AI expenses last week. The Nasdaq had its worst day of 2024 after the two members of the "Magnificent Seven" reported second-quarter earnings. Now they're reacting to Microsoft's AI sales miss. The tech giant's shares dropped more than 6% after the bell on Tuesday. Still, Microsoft is a step ahead of other companies in terms of its monetization of AI, analysts have noted. Its latest AI innovation has been its AI PC, released in May at its annual developer conference, Microsoft Build. Despite the drop Tuesday, Microsoft shares have risen 200% from five years ago and nearly 25% in the past year. Bullish Jefferies analysts see the stock rising to $550 over the next 12 months, while Bank of America's price target for Microsoft shares is $510 and Deutsche Bank's is $475.

Microsoft's fast-growing AI business isn't fast enough for Wall Street

Most companies reporting 29% quarterly growth in their most important division would be celebrated on Wall Street like Olympic gold medal winners. But when Microsoft said on Tuesday that its Azure cloud unit -- a key component of its AI strategy -- had grown at that pace, investors reacted as if Simone Biles had just flubbed the uneven bars. They sent the company's shares tumbling as much as 7% in after-hours before they recovered somewhat; the stock is down just 1.6% at mid-day today. Never mind that Microsoft's overall quarterly results slightly exceeded analyst expectations. There are two key takeaways from this episode: One is that the current AI frenzy has gotten so out of hand that investors are pricing stocks to perfection and as if rapid growth will continue into perpetuity. When companies fall just a little short, at least in Wall Street's mind, stocks take a beating. Microsoft's 29% cloud growth in its most recent quarter was slower than the 31% in the previous quarter and below the 30% that analysts had expected. Investors worry the deceleration may signal that the AI boom is maturing and slower growth ahead. Of course, Microsoft executives spun the slowdown as partly a consequence of being unable to keep up with demand. Building cloud infrastructure -- i.e. data centers -- takes time, which is why Microsoft has partnered with other companies including Oracle to fill in the gap. That brings us to a second takeaway from yesterday's earnings: Building those AI-friendly data centers and buying AI chips is super expensive. Big Tech companies are spending tens of billions of dollars each annually on data center construction and expansion, with no end in sight. Microsoft, for example, poured $13.9 billion into capital expenditures in the latest quarter (and $19 billion if you include leases), a 55% increase from the same period a year ago. Executives expect to continue spending at the same level in the future. Last week, Google-parent Alphabet reported its own high infrastructure costs (and suffered a big drop in its share price as a result). Wall Street will be paying close attention to the equivalent numbers at Facebook-parent Meta when it reports its numbers later today and Amazon and Apple's tomorrow. Investors seem to think that AI profits can be harvested without much upfront investment. Sorry to break it to you, but no. To bring it back to today's Olympic theme, I have no idea which Big Tech company will ultimately win the AI race. But I do know this: Winning a gold medal takes years of preparation and patience. Today's edition of Data Sheet was curated by David Meyer. Google's explicit deepfake fight. The search engine is adding new safety features that are supposed to stop explicit deepfakes from appearing in its results, according to The Verge. Users who successfully report such an image can also get all similar images automatically blocked using the same or different query keywords. The change is intended to combat a situation like earlier this year when deepfake images of Taylor Swift proliferated online -- and in Google's search results. Intel's struggles continue. Lagging in the AI chip race, Intel plans to cut thousands of jobs as early as this week in an effort to free up cash to invest on yet another push to catch up, according to Bloomberg. It would be Intel's second round of job cuts in the past two years after slashing 5% of its staff in 2023. Intel is hoping to close the gap with rival Nvidia, which now dominates the AI chip market. StubHub is sued for 'deceptive' fees. Online ticket seller StubHub has been sued by Washington, D.C., for using a "bait-and-switch" by showing low prices for tickets but then later tacking on big fees during checkout, says the Washington Post. The lawsuit, filed by D.C. District Attorney Brian Schwalb, also accuses StubHub of failing to disclose how the fees are calculated or what they're for. Jeff Bezos' famed management rules are slowly unraveling inside Amazon. Can they survive the Andy Jassy era? by Jason Del Rey Why Apple and other tech giants turned to dividends -- 'They've won' by Greg McKenna Singapore's minister says AI is not the new oil -- it's way better by Nicholas Gordon The C-suite is fawning over AI, but workers say its productivity gains are a mirage by Marco Quiroz-Gutierrez How Boston Scientific's digital and IT boss upgraded her team from order takers to strategic thinkers by John Kell What it takes for a vertical SaaS company to win in the AI age, according to Tidemark's David Yuan by Allie Garfinkle Only an AI breakthrough can help humans live longer, argues drug developer: 'We need a ChatGPT moment in longevity' by Christiaan Hetzner CrowdStrike is in Delta's crosshairs. Delta Airlines has hired top lawyer David Boies to seek damages against cybersecurity firm CrowdStrike, whose recent faulty software update caused the airline's operations to descend into chaos, CNBC reported. Delta had to cancel thousands of flights, which cost it $350 million to $500 million and infuriated many of its customers in the process. Delta hasn't filed a lawsuit yet. But you can bet CrowdStrike will want to put the fiasco behind it. Also, stay tuned for many of the other businesses impacted by the global outage to also go after CrowdStrike for compensation. It promises to be a legal feeding frenzy.

Microsoft Cloud Unit Miss Dulls Bright Earnings

Microsoft shares slipped Tuesday after the tech giant reported quarterly profit climbed but its crucial cloud computing unit missed expectations. Microsoft said it made a profit of $22 billion on $64.7 billion in revenue in the recently ended quarter, up from the same period a year earlier. Cloud unit revenue of $36.8 billion, however, disappointed investors and shares slid more than five percent to $401.06 in after-market trades. Money brought in from cloud computing has driven blockbuster earnings quarter after quarter, and a hint that stellar growth may be slowing was enough to give investors pause. Microsoft is among the major contenders in the fierce race to build out artificial intelligence systems, pouring billions of dollars into the technology in the hope it will pay off. Microsoft is among the best positioned to monetize generative AI, having moved the fastest to implement it across all its products, and pouring $13 billion into OpenAI, the start-up stalwart behind ChatGPT. Winning the big bet on AI is "crucial" for the group, said Jeremy Goldman of Emarketer, "but the market is willing to give them a level of patience." The AI frenzy has helped Microsoft's cloud computing business grow in the double digits, which analysts said could be hard to sustain. "This type of growth cannot hold forever, but the synergies between cloud and AI make it more likely that Microsoft holds onto reliable cloud growth for some time to come," Goldman said. Revenue from Microsoft's AI-infused "Intelligent Cloud" unit was $28.5 billion, a 19-percent increase from the same quarter a year earlier, according to the earnings figures. Microsoft's "Azure" drove a strong increase in revenue from server products and cloud services, according to the company. "We closed out our fiscal year with a solid quarter, highlighted by record bookings and Microsoft Cloud quarterly revenue," Chief Financial Officer Amy Hood said in an earnings release. Microsoft Chief Executive Satya Nadella added that the company is "focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era." Microsoft reported a net income of $88.1 billion for its fiscal year on revenue of $245.1 billion, up 22 percent and 16 percent respectively. Money taken in by Microsoft's Xbox video game unit leaped 61 percent, boosted by the acquisition of Activision, according to earnings figures. Microsoft said costs to attract visitors to its search and news services rose 19 percent, as it enhanced services with AI to better compete with Google.

Microsoft's cloud business is powering its profits -- but there's still some disappointment

Microsoft reported a 10% increase in quarterly profits Tuesday as it tries to maintain its position as a leader in artificial intelligence technology. The software giant said its fiscal fourth-quarter profit was $22 billion, or $2.95 per share, slightly beating analyst expectations for $2.94 per share. It posted revenue of $64.7 billion in the April-June period, up 15% from last year. Analysts polled by FactSet Research had been looking for revenue of $64.4 billion. Microsoft's growth was led by its cloud computing business, where quarterly revenue rose 19% to $28.5 billion. That was still lower than what some analysts expected, leading to the stock shedding about 5% in after-hours trading Tuesday. The Redmond, Washington-based company doesn't report revenue specifically from AI products but says it has infused the technology into all of its business segments, particularly its Azure cloud computing contracts, but increasingly its workplace software and other products. Much of its generative AI technology has been built as part of its multibillion-dollar investments in OpenAI, maker of ChatGPT. Revenue from Microsoft's productivity services - such as its Office line of products - rose 11% to $20.3 billion. Microsoft's personal computing business, centered on licensing its Windows operating system, made $15.9 billion for the quarter, up 14% from last year.

Microsoft reports mixed Q4 results: Cloud misses, gaming surges - Times of India

Microsoft announced its fiscal year 2024 fourth-quarter earnings on Tuesday, reporting revenue of $64.7 billion, a 15% increase year-over-year. The gaming business saw a significant increase, while the AI business struggled to meet market's expectations and hardware sales continued to decline The company's Intelligent Cloud division, which includes Azure cloud services, fell short of analyst projections.Azure and other cloud services revenue grew by 29%, slightly below the expected 30.2%. Of this growth, 8 percentage points were attributed to AI services, up from 7 points in the previous quarter. Asides failing to meet markets expectations, the growth was even lower than in the past two quarters - in Q3 the growth was at 31% and in Q2 the Azure business reported 30% growth. Xbox content and services revenue saw a significant 61% increase, largely due to the acquisition of Activision Blizzard. However, Xbox hardware sales declined by 42%, indicating a slowdown in console sales. Microsoft's Surface division further continued its downward trend, with revenue declining 11% - marking the seventh consecutive quarter of decline for the company's device segment. Despite these challenges, Microsoft reported strong growth in other areas. Server products and cloud services revenue increased by 21%, while search and news advertising revenue grew by 19%. The company's Productivity and Business Processes division, which includes Office products, saw an 11% revenue increase to $20.3 billion. CEO Satya Nadella emphasised the company's focus on AI, stating, "As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era." The earnings report also revealed increased capital expenditures of $13.9 billion, 55% higher than the previous year and $200 million above analyst expectations. Despite beating overall expectations, the tech giant's stock dropped more than 6% in after-hours trading due to concerns about artificial intelligence (AI) sales. The TOI Tech Desk is a dedicated team of journalists committed to delivering the latest and most relevant news from the world of technology to readers of The Times of India. TOI Tech Desk's news coverage spans a wide spectrum across gadget launches, gadget reviews, trends, in-depth analysis, exclusive reports and breaking stories that impact technology and the digital universe. Be it how-tos or the latest happenings in AI, cybersecurity, personal gadgets, platforms like WhatsApp, Instagram, Facebook and more; TOI Tech Desk brings the news with accuracy and authenticity.

Microsoft Is Losing a Staggering Amount of Money on AI

Microsoft has spent a staggering amount of money on AI -- and serious profits likely remain many years out, if they're ever realized. The tech giant revealed that during the quarter ending in June, it spent an astonishing $19 billion in cash capital expenditures and equipment, the Wall Street Journal reports -- the equivalent of what it used to spend in a whole year a mere five years ago. Unsurprisingly, most of those $19 billion were related to AI, and roughly half was used for building out and leasing data centers. Major tech companies are investing heavily to capitalize on the current hype surrounding generative AI. And the costs are racking up, with specialized chips and huge amounts of electricity straining budgets across the tech world. Microsoft still has enough money in the bank, despite having spent a record amount last quarter, totaling $36.8 billion in cloud revenue alone and a record $109 billion total in operating income. Nonetheless, whether the $19 billion -- and far more that will surely chase it -- will ever be recouped remains to be seen. Despite the astronomical costs, Microsoft and its peers have yet to see any significant amounts of revenue from AI worthy of disclosure in financial earnings, meaning they're currently losing a staggering amount of money on the tech. While tech giants have been adamant that AI is a long game, analysts are becoming increasingly wary of the losses. Last week, The Information reported that OpenAI could end up losing $5 billion this year alone, and could run out of cash in the next 12 months without any major cash injections. "Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful," Goldman Sachs' most senior stock analyst Jim Covello argued in a report last month. Google has similarly had to reassure investors, with CEO Sundar Pichai saying that the company was "at the early stage of what I view as a very transformative area" during the company's earnings call last week. Much like Microsoft, Google has rapidly ramped up spending on AI infrastructure in the first half of this year, and is expected to spend $49 billion in capital expenditures by the end of the year. For his part, Microsoft CEO Satya Nadella asserted during this week's earnings call that the company was justified in spending the eye-searing $19 billion, arguing that the company had the "demand signal." The company's CFO Amy Hood added during the call that Microsoft was investing in assets that "will be monetized over 15 years and beyond," a leap of faith that has many analysts worried. "The street doesn't have a lot of patience," Synovus Trust senior portfolio manager Daniel Morgan told Reuters. "They see you spending billions of dollars and they want to see a pickup in revenue of that amount." "If these companies do not hit it out of the ballpark and are far better than the estimates then they are going to be knocked back," he added.