Microsoft’s rising spending, slight cloud beat fan AI payoff worries
Excluding OpenAI, Microsoft’s order book grew 28 per cent
MICROSOFT only edged past estimates for quarterly revenue in its crucial cloud-computing business on Wednesday and ramped up spending on artificial intelligence, disappointing investors looking for better returns amid intense competition.
Its shares fell nearly 4 per cent in extended trading.
The company also reported that the contracted backlog in its cloud business more than doubled to US$625 billion, which was more than the US$523 billion rival Oracle posted in December.
But roughly 45 per cent of Microsoft’s backlog was driven by OpenAI alone, underscoring its reliance on the money-losing startup that has pledged around US$1.4 trillion in overall AI expenditure with little details on how it plans to fund the spending.
Excluding OpenAI, Microsoft’s order book grew 28 per cent, bolstered by a commitment from rival AI startup Anthropic.
Revenue at Microsoft’s Azure cloud unit grew 39 per cent in the October-December period, its fiscal second quarter, compared with a consensus estimate of 38.8 per cent, according to Visible Alpha.
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The Windows maker has long enjoyed a first-mover advantage in Big Tech’s AI race thanks to its early bet on OpenAI, whose technology powers most of its offerings including Copilot.
But a strong reception for Google’s latest Gemini model and the launch of autonomous agents, such as Anthropic’s Claude Cowork, have posed risks both to Microsoft’s AI business and the software offerings that have long been central to the company.
That has weighed on Microsoft’s stock as investor doubts persist over whether Big Tech will deliver enough returns to make up for the AI spending.
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Collectively, Microsoft, Alphabet, Meta and Amazon are expected to spend more than US$500 billion on AI this year.
In the reported quarter, Microsoft’s capital spending jumped 66 per cent year-on-year to US$37.5 billion. That was more than market estimates of US$34.31 billion, according to Visible Alpha.
“Roughly two thirds of that (spending) is for our short lived assets, that’s primarily going to be central processing units and graphics processing units,” Jonathan Neilson, vice-president of investor relations, told Reuters in an interview.
“The remaining is really for the long lived assets, which support monetisation for the next 15 years and beyond.”
Total revenue rose 17 per cent to US$81.3 billion in the second quarter, while analysts expected US$80.27 billion, based on estimates compiled by LSEG.
Late October’s major OpenAI restructuring gave Microsoft that stake. And while the overhaul included a commitment from OpenAI to buy US$250 billion of Azure services, it also freed the ChatGPT creator to pursue cloud deals with other companies that could lower its reliance on Microsoft. REUTERS
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