By Aditya Soni and Stephen Nellis
April 29 (Reuters) – Microsoft’s modest increase in quarterly cloud revenue growth on Wednesday failed to impress investors worried about rising competition in the artificial intelligence race, and its shares fell more than 2% in extended trading.
Revenue at the company’s Azure cloud-computing unit jumped 40% in the period, slightly faster than the 39% growth in the previous three months. That was in line with a consensus estimate of 40%.
Smaller rival Google Cloud posted a 63% rise in revenue that blew past estimates for 50.1% growth. Alphabet shares surged more than 4%.
“With Google blowing past revenue and earnings expectations, and big questions around Microsoft’s spending on AI infrastructure, the market wanted to be wowed to be reassured, and the numbers didn’t deliver,” said Rebecca Wettemann, CEO of Valoir, an industry analyst firm.
For Microsoft, “It’s not a blow-away quarter, which is probably what they needed to get the stock moving in the right direction and to be a catalyst,” said Melissa Otto, head of research at S&P Global Visible Alpha.
Microsoft’s sluggish adoption of its Copilot 365 assistant for businesses and a heavy reliance on OpenAI have raised fears that it may have lost its early lead in the AI race.
Users of M365 Copilot, the company’s $30 per month AI assistant, rose to 20 million from 15 million disclosed in January, said Jonathan Neilson, Microsoft’s vice president of investor relations.
“The fact that we added 5 million seats in one quarter is certainly a message that we feel very, very good about,” Neilson said.
Microsoft also said it has an AI run rate of $37 billion, measuring how much revenue it expects to come from selling infrastructure to third parties such as OpenAI, plus sales of its own AI offerings over the next year.
Microsoft said capital expenditures in the fiscal third quarter rose 49% from a year earlier to $31.9 billion, but were down from $37.5 billion in the second quarter. Wall Street had expected $34.90 billion in quarterly capital spending, according to Visible Alpha.
The amount Microsoft spent on finance leases – which are often on large data center sites – declined to $4.7 billion in the fiscal third quarter from $6.7 in the previous quarter.
Neilson told Reuters that figure did not reflect a slowdown in AI demand but rather the specific calendar dates when particular leases commence, which is when Microsoft recognizes their full cost in its financial reporting.
To sharpen its competitive edge, Microsoft has aggressively added Anthropic’s technology to its cloud service and products like Copilot amid rising demand for the Claude creator’s models.
