Microsoft says cloud AI demand is exceeding supply even after 79% surge in capital spending

Microsoft
is
increasing
spending
at
a
rate
not
seen
since
at
least
2016.
It
still
might
not
be
enough.

In

its
earnings
report
on
Thursday,
Microsoft
said
capital
expenditures
jumped
79%
from
a
year
earlier
to
$14
billion.
The
company
is
spending
much
faster
than
it’s
increasing
revenue
—
sales
climbed
17%
in
the
period.

Even
with
all
that
investment,
Microsoft
has
a
shortage
of
data
center
infrastructure,
specifically
for
deploying
artificial
intelligence
models.

“We
do
have
demand
that
exceeds
our
supply
by
a
bit,”
Microsoft
CFO
Amy
Hood
told
analysts
on
the
company’s
earnings
call.

Companies
need
an
ever-increasing
amount
of
compute
to
run
hefty
workloads,
adding
human-like
generative
AI
features
into
their
products.
It’s
a
boom
that
was
kicked
off
by
OpenAI
and
its
ChatGPT
chatbot,
and
Microsoft
has
followed
suit,
adding
assistants
to
the
Teams
communication
app,
Bing
search
engine,
and
other
services.
The
technology
can
summarize
meeting
transcripts,
compose
emails
and
explain
information
from
the
web.

Microsoft
isn’t
the
only
AI
hardware
vendor
with
a
supply
challenge.

Nvidia,
the
biggest
developer
of
processors
for
training
and
deploying
generative
AI
models,
has
been

supply
constrained,
with
revenue
more
than
tripling
in
consecutive
quarters.
Now
Microsoft,
one
of
Nvidia’s
major
customers,
is
feeling
the
stress.

During
the
fiscal
third
quarter,
revenue
in
Microsoft’s
Azure
cloud
rose
31%,
with
7
percentage
points
from
AI.
Hood
said
that
the
capacity
issue
might
have
affected
AI
results
and
will
have
an
impact
in
the
fiscal
fourth
quarter.
A
supply
limitation
means
Microsoft
has
less
available
capacity
to
rent
out
to
clients
for
deploying
AI
models
at
the
inference
stage,
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.
Within
Azure,
AI
services
stand
out
as
a
highlight,
attracting
new
clients
as
Microsoft
goes
up
against


Amazon
Web
Services.

Hood
said
that
capital
expenditures
will
increase “materially”
in
the
current
quarter,
mainly
for
cloud
infrastructure.
And
she
called
for
higher
capital
expenditures
in
the
new
fiscal
year,
beginning
July
1.

Microsoft
intends “to
scale
to
meet
the
growing
demand
signal
for
our
cloud
and
AI
products,”
she
said.

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