- Microsoft’s demand for consumption-based artificial intelligence services in the cloud is outstripping supply, Chief Financial Officer Amy Hood said on the company’s earnings call.
- The company will again materially bump up capital expenditures in the current quarter, she said.
- Capital expenditures jumped 79% from a year earlier to $14 billion in the latest quarter.
Microsoft is increasing spending at a rate not seen since at least 2016. It still might not be enough.
In its earnings report on Thursday, Microsoft said capital expenditures jumped 79% from a year earlier to $14 billion. The company is spending much faster than it’s increasing revenue — sales climbed 17% in the period.
Even with all that investment, Microsoft has a shortage of data center infrastructure, specifically for deploying artificial intelligence models.
“We do have demand that exceeds our supply by a bit,” Microsoft Chief Financial Officer Amy Hood told analysts on the company’s earnings call.
Companies need an ever-increasing amount of computing power to run hefty workloads, adding human-like generative AI features to their products. It’s a boom that was kicked off by OpenAI and its ChatGPT chatbot, and Microsoft has followed suit, adding assistants to the Teams communication app, Bing search engine and other services. The technology can summarize meeting transcripts, compose emails, and explain information from the web.
Microsoft isn’t the only AI hardware vendor with a supply challenge.
Nvidia, the biggest developer of processors for training and deploying generative AI models, has been supply-constrained, with revenue more than tripling in consecutive quarters. Now Microsoft, one of Nvidia’s major customers, is feeling the stress.
During the fiscal third quarter, revenue in Microsoft’s Azure cloud rose 31%, with 7 percentage points from AI. Hood said the capacity issue might have affected AI results and will have an impact in the fiscal fourth quarter. A supply limitation means Microsoft has less available capacity to rent out to clients for deploying AI models at the inference stage, she said.Azure is key to Microsoft’s future, contributing tens of billions of dollars in revenue every quarter and growing faster than most other parts of the company. Within Azure, AI services stand out as a highlight, attracting new clients as Microsoft goes up against Amazon Web Services.
Hood said capital expenditures will increase “materially” in the current quarter, mainly for cloud infrastructure. And she called for higher capital expenditures in the new fiscal year, beginning July 1.
Microsoft intends “to scale to meet the growing demand signal for our cloud and AI products,” she said.
Here’s how the company did in comparison with the consensus from LSEG:
- Earnings per share: $2.94 vs. $2.82 expected
- Revenue: $61.86 vs. $60.80 billion expected
Microsoft’s total revenue grew 17% year over year in the quarter, which ended on March 31, according to a statement. Net income, at $21.94 billion, or $2.94 per share, was up from $18.30 billion, or $2.45 per share in the year-ago quarter.
With respect to guidance, Microsoft’s finance chief, Amy Hood, called for $64 billion in revenue for the fiscal fourth quarter, below the $64.5 billion LSEG consensus. Hood’s forecast implies an operating margin of 42.3%, ahead of the StreetAccount consensus of 41.5%.
During the fiscal third quarter, Microsoft’s Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance and GitHub, generated $26.71 billion in revenue. That’s up about 21% and more than the $26.26 billion consensus among analysts surveyed by StreetAccount.
Revenue from Azure and other cloud services grew 31%, compared with 30% in the previous quarter. Analysts polled by CNBC had expected 28.8%, while the StreetAccount consensus was 28.6%.
Inside of the Azure growth, 7 percentage points were related to AI, up from 6 points of impact in the previous quarter. Microsoft provides cloud services for the ChatGPT chatbot from startup OpenAI, and companies have been increasingly adopting Azure AI services to develop their own capabilities for summarizing information and writing documents.The capacity bottleneck cut into the AI portion of Azure growth, Hood said.
Microsoft’s GitHub Copilot code-generation tool now has 1.8 million paid subscribers, CEO Satya Nadella said on a conference call with analysts.
The capacity bottleneck cut into the AI portion of Azure growth, Hood said.
Microsoft’s GitHub Copilot code-generation tool now has 1.8 million paid subscribers, CEO Satya Nadella said on a conference call with analysts.
The Productivity and Business Processes unit containing Office productivity software, LinkedIn, Dynamics customer-relationship management software generated $19.57 billion in revenue, up around 12%. The StreetAccount consensus was $19.54 billion. This marks the first full quarter of sales of the Copilot add-on for commercial Microsoft 365 subscriptions. Copilot draws on AI models from OpenAI, in which Microsoft has invested billions.
Amgen is among the customers that have signed up for 10,000 seats for the Copilot, Nadella said.
Microsoft’s More Personal Computing revenue totaled $15.58 billion. Revenue from the segment, which includes the Windows operating system, Surface PCs, video games and search, increased approximately 18% and was above the StreetAccount consensus of $15.08 billion. Revenue from Xbox content and services was up 62%, thanks to a bump from the $75 billion acquisition in October of game publisher Activision Blizzard, including its popular Call of Duty titles.
Sales of Windows licenses to device makers popped 11%. Technology industry researcher Gartner estimated that PC shipments increased 0.9% in the quarter. Demand for PCs was “slightly better than expected,” Hood said.
During the quarter, Microsoft introduced Surface PCs with a key for quickly accessing the Copilot chatbot. The company started selling access to the Copilot for small businesses with Microsoft 365 productivity software subscriptions and hired Mustafa Suleyman, co-founder of artificial intelligence lab DeepMind, to run a new Microsoft AI group. Suleyman had been co-founder and CEO of startup Inflection, and many of its employees also joined Microsoft.
“We have been operating with speed and intensity and this infusion of new talent will enable us to accelerate our pace yet again,” Nadella wrote in a memo about the Inflection deal, which was reportedly worth $650 million.
Excluding the after-hours move, Microsoft stock is up 6% this year, in line with the S&P 500 index.
The updates will help Microsoft expose more of its customers to generative artificial intelligence, a technology startup OpenAI’s ChatGPT chatbot popularized last year that can compose natural-sounding text with a person’s brief written command. Expanding access might help the company start to cover the costs of building data center infrastructure that enables AI.
Investors have been betting on Microsoft to capitalize on generative AI demand in operating systems, cloud, productivity, web search and security, even as it faces competition from the likes of Amazon and Google. Last week, Microsoft reclaimed from Apple the title of most valuable publicly traded company.Satya Nadella, Microsoft’s CEO, has been conveying lately that AI lies at the center of the software maker’s identity. “Our vision is pretty straightforward. We are the Copilot company,” Nadella said at Microsoft’s Ignite conference in Seattle in November.
Microsoft started offering Copilot for Microsoft 365 — drawing on OpenAI’s large language models — to large companies in November and to faculty and staff at educational institutions in December. For them, the add-on costs $30 per person per month on top of existing subscription costs.
Now, small businesses that pay for Microsoft 365 Business Premium and Business Standard can sign up for up to 299 licenses at $30 per person per month, Yusuf Mehdi, Microsoft’s head of Windows and Surface, wrote in a blog post.
Additionally, he wrote Microsoft is getting rid of the 300-seat minimum for commercial plans that has been in place since November, and it will permit Copilot’s use for those with Office 365 E3 or E5, which cost less than full Microsoft 365 subscriptions.
Individuals who have wanted to use the Copilot have been able to access it free of charge in a variety of ways, including in the Bing search engine and at copilot.microsoft.com. But those who pay for Microsoft 365 Personal and Family subscriptions haven’t been able to use it in Word, Excel, Outlook and other apps. That’s changing. As of Tuesday, people can sign up for the new Copilot Pro add-on for $20 per person each month.Those with Copilot Pro receive “priority access to the very latest models — starting today with OpenAI’s GPT-4 Turbo,” Mehdi wrote.
They will be able to use the cutting-edge model during the busiest times, switch between models and design custom chatbots using a forthcoming tool called Copilot GPT Builder.
“Whether you need advanced help with writing, coding, designing, researching or learning, Copilot Pro brings greater performance, productivity and creativity,” Mehdi wrote.
What is Microsoft’s approach to ensuring equal treatment for all users in their AI operations?
Microsoft developed a Responsible AI Standard. It’s a framework for building AI systems according to six principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountabilityWhat is the mission statement of Microsoft AI?
We see AI as a partner — a Copilot — in our mission to empower every person and organization on the planetWhat is the AI of Microsoft called?
Azure AI Platform—Artificial Intelligence. | Microsoft AzureWhat are the pros and cons of Microsoft AI?
Its ability to enhance productivity, streamline tasks, and offer intuitive AI assistance positions it as a valuable asset for modern organizations. However, its adoption has challenges, including privacy concerns, a learning curve, potential dependency on technology, occasional technical glitches, and additional costsWhat are the 6 principles of Microsoft AI?
The standard covers six key dimensions of responsible AI: fairness; reliability and safety; privacy and security; inclusiveness; transparency; and accountability. For each dimension, we define what these values mean and how to achieve our goals in practiceIs Microsoft owner of OpenAI?
“While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to a share of profit distributions,” a Microsoft spokesperson said in a statementIs Microsoft a leader in AI?
That move made Microsoft a de facto leader in a burgeoning AI field many believe will retool the tech industryHow does Microsoft use AI internally?
AI is helping us automate workflows that deliver network services, detect anomalies, and manage compliance. We’re using real-time streaming telemetry from network devices to drive continuous operational improvementsWhich AI is better than ChatGPT?
- Google Bard. Google Bard is Google’s answer to ChatGPT. …
- Copilot. Primarily aimed at developers, Copilot uses AI to assist in coding tasks, offering suggestions and automations within the development environment. …
- Perplexity AI. …
- YouChat. …
- Bing AI. …
- Chatsonic – AI Chatbot. …
- Poe. …
- Jasper
Who owns ChatGPT?
OpenAI LPChat GPT is owned by OpenAI LP, an artificial intelligence research lab consisting of the for-profit OpenAI LP and its parent company, the non-profit OpenAI IWhat are 3 disadvantages of AI?
Top 5 disadvantages of AI- A lack of creativity. Although AI has been tasked with creating everything from computer code to visual art, it lacks original thought. …
- The absence of empathy. …
- Skill loss in humans. …
- Possible overreliance on the technology and increased laziness in humans. …
- Job loss and displacement.
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