Microsoft Spending is rising at a pace not seen since at least 2016. This may not be enough.
In its earnings report Thursday, Microsoft said capital spending rose 79% year over year to $14 billion. The company’s expenses are growing at a much faster rate than revenues – sales are up 17% during the period.
Even with all these investments, Microsoft still lacks data center infrastructure, especially for deploying artificial intelligence models.
“We have a little bit more demand than supply,” Microsoft Chief Financial Officer Amy Hood told analysts on the company’s earnings call.
Companies need increasing amounts of computing to run heavy workloads to add human-like generative AI capabilities to their products. It sparked a craze with OpenAI and its ChatGPT chatbot, and Microsoft followed suit by adding Assistant to its Teams communications app, Bing search engine and other services. The technology can summarize meeting notes, compose emails and interpret network information.
Microsoft isn’t the only AI hardware vendor facing supply challenges.
NvidiaThe largest developer of processors for training and deploying generative artificial intelligence models, supply limited, has more than tripled revenue in consecutive quarters. Now, Microsoft, one of Nvidia’s major customers, is also feeling the pressure.
In the third fiscal quarter, Microsoft’s Azure cloud revenue grew 31%, with artificial intelligence growing 7 percentage points. Hood said capacity issues could impact AI’s performance and will impact the fiscal fourth quarter. Supply constraints mean Microsoft has less capacity to lease to customers to deploy AI models in the estimation phase, he said.
Azure is key to Microsoft’s future, generating tens of billions of dollars in revenue each quarter and growing faster than other parts of the company. In Azure, AI services stand out, attracting new customers in a Microsoft vs. Microsoft battle. the amazon Web services.
Hood said capital spending will increase “significantly” this quarter, mostly on cloud infrastructure. He also called for increased capital spending in the new fiscal year starting July 1.
He said Microsoft wants to “scale up to meet the growing demand signals for our cloud and artificial intelligence products.”
Watch: Deepwater’s Gene Munster says Microsoft’s increased capex on AI infrastructure isn’t surprising
