Microsoft Chief Financial Officer Amy Hood speaks during an affordable housing presentation in Bellevue, Washington, on January 17, 2019.
Jonah Kassinger | Bloomberg | Getty Images
Microsoft Spending is growing at a pace not seen since at least 2016.
Microsoft said in Thursday’s earnings report that capital expenditures increased 79% year-on-year to $14 billion. The company is spending much faster than revenue is growing – sales increased 17% during the period.
Even with all this investment, Microsoft still lacks data center infrastructure, especially for deploying artificial intelligence models.
“Our demand does exceed supply a little bit,” Microsoft Chief Financial Officer Amy Hood told analysts on the company’s earnings call.
Companies need ever-increasing amounts of computing power to run heavy workloads to add human-like generative AI capabilities to their products. It’s a craze started by OpenAI and its ChatGPT chatbot, and Microsoft has followed suit by adding Assistant to its Teams messaging app, Bing search engine and other services. This technology can summarize meeting minutes, compose emails, and interpret network information.
Microsoft isn’t the only AI hardware vendor facing supply challenges.
NvidiaThe largest developer of processors for training and deploying generative artificial intelligence models has been suffering from supply constraints and has seen revenue more than triple in consecutive quarters. Now, one of Nvidia’s major customers, Microsoft, is also feeling the pressure.
In the third fiscal quarter, Microsoft Azure cloud revenue grew by 31%, of which artificial intelligence grew by 7 percentage points. Hood said capacity issues may have impacted AI performance and will have an impact on the fourth fiscal quarter. Supply constraints mean Microsoft has less capacity available to lease to customers to deploy AI models in the inference phase, 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.In Azure, artificial intelligence services stand out, attracting new customers amid Microsoft vs. Microsoft battle Amazon Web services.
Hood said capital spending will increase “significantly” this quarter, mainly for cloud infrastructure. She also called for increased capital spending in the new fiscal year, which starts on July 1.
She said Microsoft intends to “scale up to meet growing demand signals for our cloud and artificial intelligence products.”
watch: Deepwater’s Gene Munster says increased capital spending on Microsoft’s artificial intelligence infrastructure isn’t surprising
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