Microsoft is increasing spending at a rate not seen since at least 2016. It still might not be enough.
In its earnings report on Thursday, Microsoft said capital expenditures jumped 79% from a year earlier to $14 billion. The company is making money much more quickly than it is growing its revenue, with sales increasing by 17% over the same period.
Even with all that funding, Microsoft has a lack of data center infrastructure, especially for deploying synthetic intelligence models.
On the company’s income call, Microsoft CFO Amy Hood stated to experts, “We do had desire that exceeds our source by a little.”
Companies require a constant supply of compute in order to handle heavy workloads, so they incorporate conceptual AI features that resemble humans into their products. It’s a growth that was kicked off by OpenAI and its ChatGPT robot, and Microsoft has followed coat, adding aides to the Teams contact software, Bing search engine, and other companies. The technology can summarize meeting transcripts, write emails, and provide an explanation of information on the web.
Microsoft isn’t the only AI hardware vendor with a supply challenge.
Nvidia, the biggest developer of processors for training and deploying generative AI models, has been supply constrained, with revenue more than tripling in consecutive quarters. Now Microsoft, one of Nvidia’s major customers, is feeling the stress.
During the fiscal third quarter, revenue in Microsoft’s Azure cloud rose 31%, with 7 percentage points from AI. According to Hood, the capacity issue may have had an impact on AI results and will have an impact in the fourth quarter of this year. Due to a supply gap, Microsoft has less space to rent to clients to use AI models in the inference stage, she said.
Azure is key to Microsoft’s future, contributing tens of billions of dollars in revenue every quarter and growing faster than most other parts of the company. Within Azure, AI services stand out as a highlight, attracting new clients as Microsoft goes up against Amazon Web Services.
Hood said that capital expenditures will increase “materially” in the current quarter, mainly for cloud infrastructure. Additionally, she demanded higher capital expenditures for the upcoming fiscal year, which will begin on July 1.
Microsoft plans to expand in order to “accomplish the growing demand for our cloud and AI products,” she said.
