Key Points to Remember from Microsoft’s Earnings Call

Microsoft recently reported better-than-expected earnings for the fiscal fourth quarter, although its cloud growth fell short of estimates. During the earnings call, executives provided an update on the tech giant’s investments in artificial intelligence (AI), capacity constraints, outlook, and more.

AI Capacity Constraints Hold Back Cloud Growth:
Microsoft CFO Amy Hood mentioned that the company’s AI-related capacity lagging behind demand, combined with weakness in some European regions, contributed to the softer-than-expected cloud growth. This may have led to cloud revenue landing at the lower end of previous guidance ranges.

Ramping Up Investment in AI To Meet Demand:
Like other tech giants, Microsoft is increasing its investments in AI to solidify its position as a leader in the industry. Microsoft CEO Satya Nadella emphasized that capital expenditures are driven by demand signals, such as Azure AI growth, with spending adjustments based on demand fluctuations. The current capital spending will allow the company to meet AI demand in the second half of fiscal 2025, potentially leading to revenue growth.

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Cloud and AI Investments Make Up Nearly All of Microsoft’s Capital Expenditures:
A significant portion of Microsoft’s $19 billion in capital expenditures went towards cloud or AI investments. Infrastructure accounted for half of the spending, with a focus on building and leading data centers to support monetization in the long run. Executives highlighted the flexibility of AI infrastructure and data centers as long-term assets that could lower the risk of overinvesting in the technology.

Double-Digit Revenue Growth Expected in Fiscal 2025:
Microsoft is anticipating double-digit revenue growth in fiscal 2025 as it strives to increase capacity to meet demand. Cloud revenue is projected to grow between 28% and 29% year-over-year in the first quarter of fiscal 2025.

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