Microsoft modest increase in cloud revenue growth disappoints investors
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April 29 : Microsoft's modest increase in quarterly cloud revenue growth on Wednesday failed to impress investors worried about rising competition in the artificial intelligence race, sending its shares down nearly 2 per cent in extended trading.
Revenue at the company's Azure cloud-computing unit jumped 40 per cent in the period, slightly faster than the 39 per cent growth in the previous three months. That was in line with a consensus estimate of 40 per cent.
Smaller rival Google Cloud, meanwhile, posted a 63 per cent rise in revenue that easily surpassed estimates for 50.1 per cent growth. That pushed shares of Alphabet up more than 4 per cent.
The results come as Microsoft's sluggish adoption of its Copilot 365 assistant for businesses and a heavy reliance on OpenAI have raised fears that it may have lost its early lead in the AI race.
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Microsoft's capital expenditure rose 49 per cent to $31.9 billion in the company's fiscal third quarter, the company said on Wednesday, compared with Wall Street expectations of $34.90 billion, according to Visible Alpha. Spending had totaled $37.5 billion in the second quarter.
To sharpen its competitive edge, Microsoft has aggressively added Anthropic's technology to its cloud service and products like Copilot amid rising demand for the Claude creator's models.
Earlier this week, Microsoft also overhauled its OpenAI deal to lock in its 20 per cent cut of the startup's revenue through 2030 regardless of whether it achieves technological breakthroughs.
But the new arrangement also strips Microsoft of exclusive rights to resell OpenAI's products on its cloud, just as competition heats up from Alphabet and Amazon.
The e-commerce giant has already started offering OpenAI's latest models and Codex coding tool on its cloud.
The move could free up cloud capacity for Microsoft, which has blamed shortages for holding back revenue growth and used that to argue for its massive spending.
Funding those outlays has, however, forced companies to look for ways to cut costs. Microsoft earlier this month rolled out its first employee buyout program in more than five decades.
Amazon and Meta have also announced job cuts affecting thousands of employees.
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