Microsoft Cloud Growth Slows, as Infrastructure Spending Ramps Up for AI

Key Points:

* Azure cloud computing revenue growth decelerates to 31% in Q3 2024.
* Microsoft continues to invest heavily in AI infrastructure, with capital expenditures reaching $22.3 billion.
* AI contributes significantly to Azure growth, accounting for 13 percentage points in Q2.
* Microsoft estimates annualized AI revenue nearing $13 billion.
* Wall Street questions massive spending, as DeepSeek's open-source AI model emerges as a potential competitor.

Overview:

Microsoft Corp. reported a slowdown in its cloud computing growth during the final quarter of 2024. However, the company is ramping up spending on infrastructure to support its artificial intelligence (AI) products.

Azure's revenue grew by 31% for the quarter, compared to 34% in the previous period. Microsoft attributed 13 percentage points of Azure's growth to AI, up from 12 points in Q1.

AI Investments:

Microsoft is investing heavily in AI, leveraging its partnership with ChatGPT maker OpenAI. The company has introduced several AI-powered assistants under the Copilot brand.

Despite these efforts, the monetization of AI products is taking longer than expected. Microsoft's capital expenditures reached $22.3 billion in Q3, exceeding analyst estimates. The company plans to spend $80 billion on AI data centers this fiscal year.

Analyst Concerns:

Wall Street has raised concerns about Microsoft's massive spending, particularly in light of DeepSeek's new open-source AI model that claims to rival US technology at a lower cost.

Financial Results:

Microsoft's total revenue for the December quarter increased by 12% to $69.6 billion. Net income was $3.23 per share, compared to analyst estimates of $3.12.

Market Reaction:

Microsoft's stock initially fell about 4% in extended trading before recovering slightly. It closed at $442.33 on the day of the announcement.