Microsoft Expected To Report 31 Percent Azure Growth Amidst AI Pressure

Microsoft is set to announce its fiscal fourth quarter earnings after the close of trading on Tuesday, as it faces pressure to justify large investments into artificial intelligence (AI) infrastructure.

Investors are expected to focus on the company’s Azure cloud unit, which is expected to report growth of about 31 percent year-on-year in the April to June quarter, in line with Microsoft’s own forecast, according to data from Visible Alpha.

In particular, investors will expect to see growth in the contribution of AI offerings to Azure’s bottom line after AI accounted for 7 percent of Azure’s growth in the January to March quarter.

Microsoft is expected to have seen $13.64 billion (£11bn) in capital expenditure in the fiscal fourth quarter, up 53 percent year-on-year and significantly up from the $10.95bn it spent in the previous quarter, as it invests heavily in cloud infrastructure to power AI tasks.

AI pressure

Investors last week punished Google parent Alphabet after the company’s quarterly capital spending exceeded forecasts by nearly $1bn, while the contribution of AI to revenues remained moderate and chief executive Sundar Pichai cautioned that significant returns on AI investments would take time to appear.

The company’s share price fell more than 5 percent, which spurred a sell-off in companies with exposure to AI technology, as investors grew concerned that AI revenue expectations had become unrealistic.

Alphabet said it would continue spending heavily at or over $12bn a quarter for the rest of the year.

Microsoft’s ChatGPT-powered Copilot, which it has integrated into its productivity tools, is the highest-profile productivity-related AI tool on the market today, Gartner has said, and its broad rollout requires massive cloud infrastructure due to the computing-intensive nature of generative AI.

Microsoft has not disclosed how many customers are paying for Copilot subscriptions, but has said many companies are adopting it in order to get ahead of the curve.

But Jeffries analysts said in June that they do not expect Microsoft to see significant AI income until the first half of next year.

Delayed returns

A Bloomberg report last week found that the potential of enterprise AI assistants is likely to take time to pay off, as they require substantial effort to link up to company data, struggle to understand the context of some requests and to handle commands involving multiple apps, and involve extensive user training.

Apple, Amazon and Meta are also expected to announce results this week, and all will face similar pressure to show that returns from AI justify the large gains their shares have made this year.

Profits for Apple, Microsoft, Nvidia, Alphabet and Amazon are expected to grow 29 percent year-on-year in the second quarter, according to Bloomberg data, but that is down from the previous three quarters, when growth for the companies ranged from 44 percent to 29 percent.