Microsoft stated that despite a slowdown in growth for its cloud business, it will increase investments in AI infrastructure in this fiscal year, indicating that returns on this substantial investment in technology may take longer than Wall Street expects.
Due to the spending forecast, Microsoft's stock price fell by 7%, but narrowed to a 4% drop in after-hours trading on Tuesday. During the earnings call, Microsoft said that the growth of its Azure cloud service will accelerate in the second half of fiscal year 2025.
Large tech companies have been investing billions of dollars in data centers to capitalize on the generative AI boom. Google parent Alphabet warned last week that its capital expenditures would remain high for the remainder of this year.
Microsoft reported that capital expenditures for its fourth fiscal quarter ending June 30 increased by 77.6% to $19 billion, almost entirely for cloud and AI-related spending. Total capital expenditures for fiscal year 2024 amounted to $55.7 billion.
Group Chief Financial Officer Amy Hood stated that these expenditures are to meet demand for AI services, and the assets the company is investing in will generate benefits for the next 15 years and beyond.
Nevertheless, investors were disappointed by the nearly 25% increase in Microsoft's stock over the past 12 months driven by AI optimism, as Azure's growth did not meet expectations.
