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HomeTechnologyMicrosoft Continues A.I. Spending Growth as Profit Grows 10%

Microsoft Continues A.I. Spending Growth as Profit Grows 10%

Investors worried about how much money big technology companies are spending on artificial intelligence did not get much relief from Microsoft when it reported its latest financial results on Wednesday.

In its most recent quarter, which ended on Dec. 31, Microsoft kept up its rapid drive to build data centers to power cloud computing and artificial intelligence. It spent $22.6 billion on capital expenses, almost twice as much as a year earlier.

Microsoft has said it would spend around $80 billion in data centers this fiscal year, which ends in June. It is sprinting because it has said it does not have enough capacity to meet customer demand for artificial intelligence and cloud computing services.

That spending came against the backdrop of solid overall growth in both profits and revenue for the tech giant. Revenue hit $69.6 billion, up 12 percent from a year earlier. Profit rose 10 percent, to $24.1 billion. The results beat Wall Street’s expectations and Microsoft’s own predictions.

“We are expanding our opportunity and winning new customers,” Satya Nadella, Microsoft’s chief executive, said in a statement.

The questions about A.I. spending among big technology companies grew more urgent after a Chinese start-up, DeepSeek, startled Wall Street this week with an advanced A.I. system the company said was developed for a fraction of the power and costs than leading tech firms had spent.

Microsoft was the first major cloud computing company to report financial results since DeepSeek’s revelation, and its stock was down about 1 percent in after-hours trading.

Growth in sales of Microsoft’s flagship cloud computing service, Azure, slowed to 31 percent, slightly below Wall Street’s expectations. More than a third of that growth came from artificial intelligence. Investors have been hoping that Azure’s growth will pick up steam once Microsoft has more capacity to offer customers this year.

The company said A.I. sales surpassed an annualized run rate of $13 billion.

Microsoft’s artificial intelligence sales include selling access to the systems created by ChatGPT’s creator, OpenAI, and providing computing power when customers use OpenAI products directly from the start-up. Microsoft is OpenAI’s largest investor and recently said their financial arrangement expires in 2030.

The company has for more than a year been working to provide customers with access to A.I. systems beyond just those developed by OpenAI. And last week, when OpenAI announced the $100 billion Stargate project with Oracle and other partners, Microsoft said it had renegotiated its deal with OpenAI.

Azure is no longer the sole provider of data centers for OpenAI to develop new systems. Microsoft now has first dibs to spend on infrastructure for OpenAI, but it can say no and prioritize its extra resources — if it has them — elsewhere.

“On a day like today, that ‘bet’ looks like a clever one,” Karl Keirstead, an analyst at UBS, wrote in a note to investors on Monday, amid the DeepSeek panic.

DeepSeek’s advancements has added uncertainty to the value of Microsoft’s investment in OpenAI, but they could also help Microsoft and its peers spend less on capital expenditures, which is “generally a good thing,” Mr. Keirstead wrote.

(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.)

In other parts of Microsoft’s business, sales of its online productivity tools for businesses, including Excel, Teams and Word, grew 15 percent. About 5 percent of eligible Microsoft 365 Commercial customers have upgraded to include Copilot, Microsoft’s A.I. companion, according to analysts at Bank of America.

Microsoft’s personal computing business was essentially flat, at $14.7 billion.

Content Source: www.nytimes.com

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