Microsoft Chief Financial Officer Amy Hood speaks during a presentation on affordable housing on January 17, 2019 in Bellevue, Washington.
Chona Kassinger | Bloomberg | Getty Images
Microsoft is increasing spending at a pace not seen since at least 2016, but that may not be enough.
Microsoft announced in its earnings report Thursday that capital spending rose 79% from a year earlier to $14 billion. The company has been spending at a much faster pace than revenue growth, and sales for the period rose 17%.
Despite this investment, Microsoft lacks data center infrastructure, especially for deploying artificial intelligence models.
“We have a little bit more demand than supply,” Microsoft Chief Financial Officer Amy Hood told analysts on an earnings call.
Enterprises are adding human-like generative AI capabilities to their products and need more and more computing power to run high-volume workloads. It's a boom started by OpenAI and its ChatGPT chatbot, and Microsoft followed suit, adding assistants to its Teams communications app, Bing search engine, and other services. This technology can summarize meeting notes, compose emails, and explain information from the web.
Microsoft isn't the only AI hardware vendor facing supply challenges.
Nvidia, the largest developer of processors for training and deploying generative AI models, has seen its revenue more than triple in consecutive quarters amid supply constraints. Currently, one of Nvidia's major customers, Microsoft, is feeling stressed.
During the fiscal third quarter, Microsoft's Azure cloud revenue increased 31%, and AI revenue increased 7 percentage points. Hood said capacity issues may have affected AI's performance and will impact the fourth quarter of the fiscal year. Limited supply means Microsoft will have less available capacity to lend to customers to deploy AI models during the inference stage, he said.
Azure is key to Microsoft's future, generating tens of billions of dollars in revenue every quarter and growing faster than most other parts of the company. AI services stand out as a highlight within Azure, attracting new customers as Microsoft takes on Amazon Web Services.
Hood said capital spending will increase “significantly” this quarter, primarily for cloud infrastructure. It called for an increase in capital expenditures for the new fiscal year starting July 1.
He said Microsoft intends to “scale to meet the growing demand for our cloud and AI products.”
