Amy Hood, chief financial officer of Microsoft, speaks during a presentation on affordable housing in Bellevue, Washington, on January 17, 2019.
Chona Kasinger | Bloomberg | beautiful images
Microsoft is increasing spending at a pace not seen since at least 2016. It may not be enough.
IN its income statement on Thursday, Microsoft said capital spending rose 79% from a year earlier to $14 billion. The company is spending much faster than it is growing revenue – sales were up 17% in the period.
Even with all that investment, Microsoft still lacks the data center infrastructure, especially to deploy artificial intelligence models.
“We actually have demand that exceeds our supply a little bit,” Microsoft Chief Financial Officer Amy Hood told analysts on the company’s earnings call.
Companies need increasing amounts of computing power to run massive workloads, adding innovative human-like AI features to their products. It’s a boom started by OpenAI and its ChatGPT chatbot, and Microsoft has followed suit, adding assistants to its Teams communications app, Bing search engine, and other services. This technology can summarize meeting content, compose emails, and interpret information from the web.
Microsoft isn’t the only AI hardware supplier facing supply challenges.
Nvidiathe largest developer of processors for training and deploying generative AI models, has limited supply, with revenue more than tripling in consecutive quarters. Now Microsoft, one of Nvidia’s major customers, is feeling the strain.
In the fiscal third quarter, Microsoft’s Azure cloud revenue grew 31%, with 7 percentage points from AI. Hood said the capacity issue could affect AI results and will have an impact in the fiscal fourth quarter. Supply constraints, she said, mean Microsoft has less available capacity to let customers hired to deploy AI models at the inference stage.
Azure is key to Microsoft’s future, contributing tens of billions of dollars in revenue each quarter and growing faster than most other parts of the company. In Azure, AI services stand out as a highlight, attracting new customers when Microsoft does the opposite Amazon Web Services.
Hood said capital spending will increase “significantly” in the current quarter, primarily for cloud infrastructure. And she called for higher capital spending in the new fiscal year, which starts July 1.
She said Microsoft intends to “scale to meet growing demand signals for our cloud and AI products.”
