After beating Wall Street expectations for revenue and profit in the fourth quarter of its fiscal year, Microsoft (MSFT.O) on Tuesday unveiled an aggressive expenditure plan to meet demand for its new artificial intelligence services.
Microsoft developed additional data centres to enable AI, driving increasing costs significantly. Chief Financial Officer Amy Hood stated during an analyst conference call that the company’s capital expenditures will continue to rise each quarter throughout fiscal 2024.
Shares decreased by nearly 4%
Wall Street is examining how Microsoft, which took the lead early on with investments in OpenAI, owner of the well-known ChatGPT service, may profit from generative AI services. The $30 a month “Copilot” assistant for its Microsoft 365 service, which can condense a day’s worth of emails into a brief update, is one example of how Microsoft is incorporating AI into its own products. Additionally, it wants to sell cloud computing services that other businesses might use to develop AI products.
According to Microsoft’s financial data, significant investments in AI services have surpassed corresponding revenue growth. Company’s quarterly capital expenditures reached the highest single-quarter total since at least its fiscal 2016 despite its Azure sales growth marginally exceeding market projections. The business is competing with other cloud service providers for a finite number of Nvidia Corp (NVDA.O) chips, whose graphics processing units are necessary for developing AI-related goods and services.
Despite Company’s higher spending in the fiscal year 2024, CFO Hood informed analysts that after accounting for the effects of an accounting rule change, operating profit margins would marginally increase. The ability to be aggressive in addressing the demand curve is the actual focus here, according to Hood. Hood noted that Copilot is not ready for a general release and that any revenues from the product are probably going to occur in the second half of fiscal 2024, so it will take time to start making money.
Projected Revenue Growth
In comparison to Visible Alpha’s estimate of 25.6% that does not account for exchange rate fluctuations, Microsoft projected Azure revenue growth of 25% to 26% in constant currency for the fiscal first quarter. In contrast to the experts’ consensus estimate of $18.08 billion, the midpoint of its first-quarter forecast for the segment that includes Office was $18.15 billion. The midpoint of Company’s prediction for its Windows business was $12.7 billion, which was less than analysts’ projection of $13.14 billion.
Refinitiv reports that revenue for the fiscal fourth quarter that ended on June 30 increased to $56.2 billion, exceeding the average forecast of $55.5 billion. Above the $2.55 median expectation, net income per share came in at $2.69. Refinitiv data shows that Company’s Intelligent Cloud division, which manages the Azure cloud computing platform, raised its revenue to $24 billion, slightly exceeding forecasts. Revenue from Azure increased 26%, above Visible Alpha’s prediction of 25.2% growth.