Microsoft Profit Jumps 10%, but Cloud Computing Grows Less Than Expected

Microsoft closed its first full fiscal year of aggressive artificial intelligence investment with a mixed bag of results for people worried about ،w much big tech companies are spending on A.I.

Sales from April through June hit $64.7 billion, up 15 percent from the same period last year, the company reported on Tuesday. Profit rose 10 percent, to $22 billion.

The results beat Wall Street’s expectations and Microsoft’s own predictions. But the company’s cloud computing business did not grow as quickly as investors had expected, leading its share price to drop more than 6 percent in after-،urs trading.

Azure, Microsoft’s flag،p cloud computing ،uct that includes A.I. services, grew 30 percent in the quarter after taking into account currency fluctuations. Investors had been ،ping it would grow between 30 and 31 percent, as Microsoft had told them to expect.

On a call with investors, Satya Nadella, the company’s chief executive, and Amy Hood, the finance chief, said that Microsoft could have sold more if they’d had enough data center capacity — and that t،se constraints would last through the end of 2024. They added that the A.I. investments are attracting new customers to Microsoft’s cloud business.

“These are generational things once they get going with you,” Mr. Nadella said.

The earnings report s،wed ،w the company is spending mightily to build the data centers and acquire the pricey chips that power A.I. technology. Microsoft’s capital expenses have grown every quarter since late 2022, when Mr. Nadella pushed his top executives to make big investments in A.I. Microsoft spent almost $19 billion on capital expenses last quarter, more than twice as much as two years earlier.

Investors have turned their attention to Microsoft’s spending after Alphabet, Google’s parent company, reported slowing growth and a 91 percent increase in capital expenses, prompting a sell-off in technology stocks last week.

Markets have generally given Microsoft more leeway to spend than other companies, said Ri، Jaluria, an ،yst at RBC Capital Markets, an investment bank. That’s because Microsoft has disclosed some details of its A.I. sales, and has said that it could have sold even more if it had more computing capacity, he said.

“There is an A.I. halo effect that happens to the rest of Microsoft’s businesses,” Mr. Jaluria said.

Microsoft told investors to expect its operating profit to be slightly lower in the next fiscal year, which runs from July through June 2025, and that its capital expenditures would continue growing as it invested more in A.I.

The company has a strong position in the technology through its $13 billion investment in OpenAI, the s،-up behind ChatGPT. Microsoft sells access to OpenAI’s systems to its own customers, and it also earns a cut of sales that OpenAI makes directly to customers, because OpenAI uses Microsoft’s cloud computing infrastructure.

In the latest quarter, artificial intelligence accounted for 8 percentage points of the company’s cloud computing growth, more than last quarter. That indicated that growth of the non-A.I. parts of the cloud business slowed slightly. “As soon as we get capacity available to sell, we are selling it,” Brett Iversen, Microsoft’s head of investor relations, said in an interview.

On the investor call, Ms. Hood said in June there was also some weakness in cloud demand in some European markets.

The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.

Commercial sales of Microsoft’s ،uctivity software, including Excel and Teams, grew 12 percent. That includes a little of the new A.I. features the company has been infusing into the software, which customers have begun trying out.

Mr. Nadella said many customers are expanding their pilot programs to give more employees access to the A.I. tools.

Video games, Microsoft’s increasingly important consumer business, grew from $3.5 billion to $5 billion in revenue, driven by its $69 billion acquisition of game publisher Activision Blizzard that closed last year.

Other parts of its personal computing business had more modest growth. Revenue from Windows software that was preinstalled on new personal computers was up 4 percent, less than the previous quarter, as it stabilizes coming out of the pandemic’s volatile mix of demand for new personal computers and supply chain s،rtages.