Microsoft reported $19 billion in quarterly capital expenditures, a 35% increase from the previous quarter, as part of a broader trend of tech giants investing in expanding their data center infrastructure for AI. However, the reaction on Wall Street was mixed, with the company meeting analysts’ expectations for revenue and profits in its fiscal fourth quarter, but the growth rate in its Azure cloud business fell short, causing the company’s shares to drop in after-hours trading. Despite this, Microsoft reported record earnings of $64.7 billion and profits of $22 billion for the quarter.
Azure, Microsoft’s cloud business, grew by 29% in the quarter, with AI services contributing 8 percentage points to that growth, reaching a new high for that metric. However, some analysts and investors were disappointed by the growth rate, leading to a more than 5% drop in Microsoft’s shares. The slower growth was attributed to capacity constraints with AI demand exceeding available supply. Microsoft has made significant capital investments and signed leases with partners to address this issue, with plans to accelerate Azure growth in the second half of the fiscal year.
Microsoft CEO Satya Nadella announced that the company-owned software development platform GitHub has reached an annual revenue run rate of $2 billion, with the AI-powered GitHub Copilot programming tool accounting for over 40% of GitHub’s revenue. This revenue contribution makes GitHub Copilot a larger business than all of GitHub was when Microsoft acquired it for $7.5 billion in 2018. Nadella expressed confidence in the potential for GitHub Copilot to continue driving growth for the platform.
The company’s three major divisions all saw growth in the quarter, with Productivity and Business Processes revenue increasing by 11%, led by a 13% growth in Office 365 Commercial revenue. Intelligent Cloud revenue grew by 19%, primarily due to Azure growth, while More Personal Computing revenue increased by 14%, driven by a 61% increase in Xbox content and services revenue, mostly from the Activision acquisition, and a 7% increase in Windows revenue. Despite these positive results, there was no discussion on the conference call about the recent CrowdStrike outage that impacted Windows PCs globally due to a flawed update from the cybersecurity vendor.
Overall, Microsoft’s strong earnings report highlighted the company’s continued investment in expanding its data center infrastructure and AI capabilities, despite facing challenges with meeting demand for Azure due to capacity constraints. The company’s focus on AI-powered services and platforms such as GitHub Copilot is proving to be a significant revenue driver, with potential for further growth in the future. Microsoft’s three major divisions all showed positive growth, demonstrating the company’s resilience and ability to adapt to evolving technology trends. With plans to accelerate Azure growth in the coming months, Microsoft remains a key player in the tech industry and is well positioned for future success.
