Microsoft boosts AI spending amid cloud growth slowdown

Microsoft plans to increase its spending on AI infrastructure this fiscal year despite slower growth in its cloud business. This announcement led to a 4% drop in its share price after an initial 7% decline. The tech giant, along with others like Google, is investing heavily in data centres to leverage the AI boom, with Microsoft’s capital spending rising 77.6% to $19 billion in its fiscal fourth quarter, primarily for cloud and AI-related expenses.

Despite these investments, investors were disappointed with the slower growth of Microsoft’s Azure cloud service. The company forecasted a 28% to 29% growth for Azure in the upcoming quarter, slightly below market expectations, which followed a 29% increase in the previous quarter, but it also fell short of estimates, indicating a slowdown from earlier months.

CEO Satya Nadella highlighted that AI services are becoming a significant part of Azure’s revenue growth, with over 60,000 customers using Azure AI, a nearly 60% increase from the previous year. Microsoft has integrated AI across its products, including its search engine Bing and productivity tools like Word, driven by its substantial investment in OpenAI.

Microsoft’s total revenue rose 15% to $64.7 billion in the fourth quarter, exceeding analyst expectations. The company also grew in its personal computing business, benefiting from stabilising PC sales. However, revenue from its Intelligent Cloud unit, which includes Azure, missed analyst estimates, rising 19% to $28.5 billion.