Microsoft Faces Cloud Infrastructure Shortage for AI

Microsoft is experiencing a shortage of data center infrastructure, particularly for deploying artificial intelligence models. This is highlighted in the earnings report for the third quarter of the corporation’s 2024 fiscal year.

“We have demand that slightly exceeds supply,” said Microsoft CFO Amy Hood.

The situation is not alleviated by the corporation’s rising capital expenditures, which have surged by 79% compared to the previous year, reaching $14 billion. The company is spending funds much faster than it is increasing revenue—sales grew by 17% during the reporting period.

Microsoft requires ever-greater computing power to handle large workloads and add human-like generative AI features to its products. This boom began with the release of OpenAI’s ChatGPT chatbot, and Microsoft followed suit by integrating assistants into Teams, Bing, and other services.

In the third fiscal quarter, Azure’s AI revenues accounted for 7 percentage points of the 31% growth. According to Hood, the shortage of capacity may have impacted AI revenues and will continue to affect the current quarter, limiting clients’ ability to rent resources for inference of models.

Almost All Microsoft Businesses Show Growth

In the third quarter of the 2024 fiscal year, Microsoft reported $61.9 billion in revenue and $21.9 billion in net profit. This is 17% and 20% more, respectively, than the previous year.

Almost all business segments grew year-on-year, except for Surface device sales (-17%) and Xbox gaming consoles (-31%).

Overall, the financial results for the reporting period exceeded analysts’ expectations. However, the company forecasts earnings of $64 billion in the current quarter, below the LSEG consensus of $64.5 billion.

Meanwhile, Hood noted that capital expenditures will continue to increase significantly. Most of the funds will be directed towards infrastructure to meet the demand for cloud and AI.

Despite the weak forecast and rising capital expenditures, Microsoft’s stock price rose by 16% in after-hours trading.

Meta has forecasted an increase in AI investments to $40 billion in 2024.