(Bloomberg) — Microsoft Corp. said growth in its cloud-computing business slowed during the last three months of 2024, even as the company continues to ramp up spending on infrastructure for its artificial intelligence products.
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The Azure cloud division reported a 31% revenue gain compared with a 34% pace in the prior quarter, the company said in a statement Wednesday. Analysts had projected a 32% rise.
The Redmond, Washington-based software maker is considered a leader in commercializing artificial intelligence products, thanks to its close partnership with ChatGPT maker OpenAI. In the last year, Microsoft has unleashed a blizzard of Copilot-branded AI assistants, but efforts to monetize those products is taking longer than some investors would prefer.
Microsoft said Azure AI services grew 157%. But overall sales in the key cloud unit are being hurt by the fact that the company still doesn’t have enough data center capacity to meet customer needs, Chief Financial Officer Amy Hood said in an interview.
The company has almost $300 billion worth of commercial service contracts that Microsoft must provide in the future and has not yet recognized as revenue, she said.
Demand remains strong, with commercial bookings — a measure of future revenue — rising 67%, “far ahead” of what Microsoft had expected, she said. Hood attributed that partly to Azure commitments from OpenAI.
Along with cloud rivals Google and Amazon.com Inc., Microsoft is spending more than it ever has in its history, outlays that mostly go to the chips and data centers required to fuel power-hungry AI services. The company has said it expects to spend $80 billion this fiscal year on AI data centers. Wall Street has begun to question the massive outlays, especially after the Chinese upstart DeepSeek released a new open-source AI model that it claims rivals the abilities of US technology at a fraction of the cost.
Capital expenditures during the quarter were $22.3 billion, the company said, exceeding analyst expectations of about $21 billion. The infrastructure buildout resulted in narrower margins in the cloud business.
Total revenue in the three months ended Dec. 31 rose 12% to $69.6 billion. Profit during the quarter, the second of Microsoft’s fiscal year, was $3.23 a share. Analysts estimated sales of $68.9 billion and profit of $3.12 per share, according to data compiled by Bloomberg.
