Microsoft is increasing spending to a level not seen since at the least 2016. It should still not be enough.
In its earnings report Thursday, Microsoft said capital spending rose 79% from a yr ago to $14 billion. The company is spending much faster than it’s growing revenue – revenue grew 17% during that period.
Despite all these investments, Microsoft lacks the information center infrastructure, especially for the deployment of artificial intelligence models.
“We have demand that significantly exceeds our supply,” Microsoft CFO Amy Hood told analysts on the corporate's earnings call.
Companies require ever-increasing amounts of computing power to handle heavy workloads and are adding human-like generative AI capabilities to their products. It's a boom sparked by OpenAI and its ChatGPT chatbot, and Microsoft has followed suit, adding assistants to the Teams communications app, Bing search engine, and other services. The technology can summarize meeting minutes, compose emails and explain information from the web.
Microsoft isn't the one AI hardware vendor with delivery issues.
Nvidia, the most important developer of processors for training and deploying generative AI models, has been hit by supply shortages and revenue has greater than tripled in consecutive quarters. Now Microsoft, certainly one of Nvidia's largest customers, is feeling the stress.
In the fiscal third quarter, revenue in Microsoft's Azure cloud grew 31%, with 7 percentage points driven by AI. Hood said the capability issue could have impacted AI results and can impact the fiscal fourth quarter. A supply cap means Microsoft has less available capability it could rent to customers for deploying inference-stage AI models, she said.
Azure is vital to Microsoft's future, contributing tens of billions of dollars in revenue each quarter and growing faster than most other parts of the corporate. Within Azure, the AI services stand out as a highlight and attract latest customers in comparison with Microsoft Amazon Internet services.
Hood said capital spending will increase “significantly” in the present quarter, totally on cloud infrastructure. And she called for higher investments in the brand new financial yr, which begins on July 1st.
Microsoft intends to “scale to meet the growing demand signal for our cloud and AI products,” she said.
REGARD: Microsoft's increase in investment in AI infrastructure isn’t any surprise, says Deepwater's Gene Munster
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