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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 fiscal 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 in the previous quarter which saw growth of 31pc, and was below analyst expectations according to Reuters.
The slowing growth in this division highlights concerns about the massive investments companies such as Microsoft have made into data centres in their attempts to build up AI services. Major tech companies 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 making 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”.
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