AsianFin -- Microsoft Corporation stock slid as much as 5% in late trading as the software giant’s financial results raised new concerns over artificial intelligence (AI) infrastructure cost and overshadowed quarterly sales beat.
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Microsoft reported double-digit growth of top and bottom line for its first fiscal quarter ended September 30. Revenue jumped 18% year-over-year (YoY) to $77.67 billion, shattering Wall Street estimated $75.55 billion. That marks the company record the highest revenue growth since the end of 2023 for two quarters in a row. Diluted earnings per share (EPS) for the September quarter climbed 13% to $3.72, cooling from the grow rate of 24% three months earlier and still topping analysts’ projection of $3.67.
Microsoft cloud business, which is currently most evidently benefiting from generative AI applications, also beat analysts’ estimates. The commercial cloud brought $49.1 billion from July to September, representing a YoY surge of 26%. Analysts anticipated the segment recorded $48.6 billion of revenue. Microsoft Intelligent Cloud, which also includes the core cloud platform Azure, saw revenue gained 28% YoY to $30.9 billion, ahead of Wall Street estimate of $30.18 billion.
Revenue from Azure and other cloud services delivered a YoY increase of 39% when adjusting for currency fluctuations. The growth, same as that of three months ago, topped the consensus analysts projection of 37%. But investor expectations for Microsoft were very high heading into earnings, with some buyside bogeys as high as the low 40s.
“We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share,” said Amy Hood, chief financial officer (CFO) of Microsoft. “Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform.”
Microsot posted a steeper climb in spending than Wall Street anticipated, fueling anxieties about the high costs of providing AI infrastructure. The September quarter saw captial expenditure, or Capex, including finance leases, an indication of data center spending, refreshed a record at $34.9 billion, while analysts projected to be $30.06 billion. The Capex was up about $10 billion, or more than 60%, from the previous record set during the previous quarter, and surged 74.5% from a year ago.
Microsoft CEO Satya Nadella said his company will continue to increase our investments in AI across both capital and talent as its planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact.
Hood said at an earnings call that the Capex will increase again in the current fiscal quarter. She told analysts Microsoft still failed to address a computing capacity crunch despite massive spending on AI datacenters. Demand for Azure services is “significantly ahead of the capacity we have available,” she said. “I thought we were going to catch up,” Hood added. “We are not.”
Looking forward the current quarter, Microsoft expected revenue to be between $79.5 billion and $80.6 billion. Hood said revenue from Azure in constant currency will grow about 37%. That means Azure sales growth would cool from 39% for the previous two quarters, the fastest growth rate since the late of 2022.
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