By Aditya Soni, Yuvraj Malik and Anna Tong
(Reuters) -Microsoft’s weaker-than-expected revenue growth in its Azure cloud business dragged its shares down 5% in after-hours trading on Tuesday, in another sign the payoff in hefty AI investments may take longer than first thought.
Its results rocked a few other large tech stocks. Shares of Amazon.com fell 2.3% and Meta Platforms was down 3% in extended trading. Nvidia pared losses to trade flat after falling 10% after smaller rival Advanced Micro Devices forecast quarterly revenue above market estimates, banking on demand for its artificial-intelligence chips staying strong.
Microsoft’s shares have climbed nearly a quarter in the past 12 months on optimism that the company is the frontrunner in the AI race thanks to its investments in ChatGPT maker OpenAI. But they have lost 10% since a record high on July 5 amid a broader market sell-off driven largely by megacap stocks, following disappointing results from EV maker Tesla and Google parent Alphabet’s forecast for higher expenditures.
Microsoft said revenue from its Intelligent Cloud unit – home to the Azure cloud-computing platform – rose 19% to $28.5 billion in the fiscal fourth quarter ended June 30, missing analysts’ estimates of $28.68 billion, LSEG data showed.
Azure revenue rose 29%, lower than the 30.6% growth estimate from market research firm Visible Alpha. Microsoft does not break out the absolute revenue figure for Azure, the part of its business best situated to capitalize on booming interest in AI.
“The AI contribution continues to grow each quarter despite having some capacity constraints on the AI side that we called out in April,” said Brett Iversen, Microsoft’s vice president of investor relations. “AI interest and demand continues to be a big driver.”
AI services accounted for 8 percentage points of Azure’s growth in the quarter, up from 7 percentage points in the first three months of the year, he said.
The miss came as the Windows maker is pouring billions of dollars into data centers to prepare for a potential surge in demand for AI services.
The company’s capital expenditure including finance leases rose 77.6% in the quarter to $19 billion. It also marked a big step up from the $14 billion it recorded in the previous three months.
Iversen said Microsoft continued to ramp up spending in order to meet “strong customer demand.”
Microsoft has said the spending was needed to expand its global network of data centers and overcome the capacity constraints that were hampering its efforts to meet AI demand.
CEO Satya Nadella has pushed the company to go all-in on the technology, weaving AI into almost every product from search engine Bing to productivity software such as Word.
Large parts of those efforts have been fueled by technology from OpenAI, in which Microsoft has invested about $13 billion, including the 365 Copilot assistant for enterprises that costs $30 a month and became widely available last year.
The productivity business – home to the Office suite of apps, LinkedIn and 365 Copilot – posted growth of 11%, compared with expectations of 10%.
Microsoft – seen as a bellwether for the tech industry thanks to its wide-spanning business – said total revenue rose 15% to $64.7 billion in the fourth quarter. Analysts had expected $64.39 billion, according to LSEG data.
Revenue from its personal computing business, which includes Windows and devices such as the Xbox and Surface computers, grew 14% to $15.9 billion, as it benefited from stabilizing personal computer sales. The PC market grew for the second straight quarter in the April-June period, according to research firm IDC.
(Reporting by Aditya Soni and Yuvraj Malik in Bengaluru and Anna Tong in San FranciscoWriting by Sayantani GhoshEditing by Sriraj Kalluvila and Matthew Lewis)
