Microsoft's shares have taken a hit after its cloud earnings failed to meet analyst expectations while capex has soared.
While the company as a whole reported a strong quarter in its fiscal year 2024 earnings call, revenue generated by its cloud segment was lower than anticipated.
The cloud giant reported $28.52 billion for its top segment - Intelligent Cloud - which includes Azure public cloud, Windows Server, Nuance, and GitHub. This was just short of the expected $28.68bn.
Revenue from Azure and cloud services grew by 29 percent for the quarter, which again had been anticipated to reach 31 percent.
Of the 29 percent growth for Azure and other cloud services, 8 percentage points came from AI services.
“Our share gains accelerated this year driven by AI,” Nadella said.
Amy Hood, Microsoft’s CFO puts the lower-than-expected growth for the quarter down to a lack of capacity, which is expected to remain in H1 of FY2025.
For the fiscal year, Microsoft Cloud revenue surpassed $135 billion, which was up 23 percent year-on-year.
Alongside those slightly disappointing cloud results, Microsoft reported $19 billion in quarter capex, up 35 percent from the March quarter which reached $11.2bn.
Hood said of the capex: "Cloud and AI-related spend represents nearly all of our total capital expenditures. Within that, roughly half is for infrastructure needs where we continue to build and lease data centers that will support monetization over the next 15 years and beyond.
"The remaining cloud and AI-related spend is primarily for servers, both CPUs and GPUs to serve customers based on demand signals."
The company is set to continue to scale its infrastructure investments with FY2025 capex predicted to be greater than FY2024, with Hood noting: "We expect capital expenditures to increase on a sequential basis given our cloud and AI demand, as well as existing AI capacity constraints."
Following the release of its results, Microsoft shares dropped by as much as seven percent in extended trading on July 30, though they have since stabilized.
The cloud giant has had a drama-filled quarter, with a major global outage earlier this month alongside CrowdStrike bringing down critical services including banks and airlines. Azure experienced a second outage on July 30, this time isolated from CrowdStrike.
The company also successfully settled its dispute with CISPE in Europe, paying almost $22m for the privilege. The company also settled a $14.4m lawsuit with the Civil Rights Department over alleged discrimination surrounding protected leave.
Microsoft shares took a hit earlier this month alongside Nvidia, AMD, and Google in what was put down to concerns surrounding return on investment in AI.
Goldman Sachs head of global equity research, Jim Covello, said: "My guess is that if important use cases don’t start to become more apparent in the next 12-18 months, investor enthusiasm may begin to fade."
