Microsoft’s Azure growth slows, testing investors’ patience

Microsoft Corp.’s Azure cloud-computing service experienced a slowdown in quarterly growth, testing the patience of investors eager to see returns from significant investments in artificial intelligence products.

Revenue from Azure, Microsoft’s primary growth engine in recent years, increased by 29 per cent in the fiscal fourth quarter, compared with a 31 per cent rise in the previous period. About 8 percentage points of the increase in the recent period were attributable to AI, up from 7 percentage points in the prior quarter.

“It was really about the cloud services number — it needed to just be a little higher,” Doug Clinton, a managing partner at Deepwater Asset Management, said on Bloomberg Television. Still, the accelerated contribution from AI confirms business momentum with that emerging technology, wrote Raimo Lenschow, an analyst at Barclays.

Chief Executive Officer Satya Nadella has been integrating Microsoft’s product line with AI technology from partner OpenAI, including digital assistants called Copilots that can summarise documents and generate computer code, emails, and other content. The company is also selling Azure cloud subscriptions featuring OpenAI products. Alongside rivals like Amazon.com Inc. and Google, Microsoft has been spending billions to construct new data centres to meet the demand for cloud computing and power-hungry AI services.

On a call with analysts Tuesday, Chief Financial Officer Amy Hood said that although Azure growth will continue to slow in the current quarter, which ends in September, investments in data centres and servers will enable the company to capitalise on demand and accelerate Azure growth in the second half of fiscal 2025.

Microsoft shares fell less than 1 per cent on Wednesday as markets opened in New York. As of Tuesday’s close, the stock had gained about 12 per cent in 2024.

In the fourth quarter, which ended June 30, capital expenditures — closely watched by investors as the company embarks on its historic AI build-out — jumped to $19 billion, including server farm leases, from $14 billion in the previous quarter. That figure will increase in the new fiscal year, Hood said.

In an interview, investor relations chief Brett Iversen said Microsoft currently lacks sufficient capacity to fulfil customer demand for cloud and AI services. “We’re building out for that as quickly as we can,” he said.