Microsoft Chief Financial Officer Amy Hood speaks during a presentation on affordable housing in Bellevue, Washington, January 17, 2019.
Chona Kasinger | Bloomberg | Getty Images
Microsoft is increasing spending at a pace not seen since at least 2016. That still might not be enough.
In its earnings report released Thursday, Microsoft said its capital spending jumped 79% from a year earlier, to $14 billion. The company is spending much faster than it is growing revenue: sales increased 17% during the period.
Despite all these investments, Microsoft lacks data center infrastructure, particularly for deploying artificial intelligence models.
“We have demand that slightly exceeds our supply,” Amy Hood, Microsoft’s chief financial officer, told analysts on the company’s earnings conference call.
Businesses need an ever-increasing amount of compute to run heavy workloads, adding human-like generative AI capabilities to their products. It’s a boom that was started by OpenAI and its chatbot ChatGPT, and Microsoft has followed suit by adding assistants to communications app Teams, search engine Bing and other services. Technology can summarize meeting transcripts, write emails, and explain information from the web.
Microsoft isn’t the only AI hardware vendor facing a supply problem.
Nvidia, the largest developer of processors for training and deploying generative AI models, has faced supply constraints, with revenue more than tripling in consecutive quarters. Now Microsoft, one of Nvidia’s main customers, is feeling the stress.
During the fiscal third quarter, Microsoft’s Azure cloud revenue grew 31%, including 7 percentage points for AI. Hood said the capacity issue may have affected AI’s results and will impact the fiscal fourth quarter. A supply limitation means Microsoft has less available capacity to rent to its customers to deploy AI models at the inference stage, she said.
Azure is key to Microsoft’s future, contributing to tens of billions of dollars in revenue each quarter and growing faster than most other parts of the company. Within Azure, AI services stand out as a strong point, attracting new customers as Microsoft battles Amazon Web Services.
Hood said capital spending would increase “significantly” in the current quarter, primarily for cloud infrastructure. And she called for higher capital spending in the new fiscal year, starting July 1.
Microsoft intends to “evolve to meet the signal of growing demand for our cloud and AI products,” she said.
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