Microsoft investors’ fears escalate over AI’s slow payoff

Microsoft investors are questioning whether or not its cloud computing service Azure is doing enough business to make up for the billions it is spending on developing its artificial intelligence (AI) tools. 

Before its earnings call, expected on July 30, data from Visible Alpha points to steady growth for Azure quarter-over-quarter, with 31% growth.

AI in focus

According to reports, investors expect even more growth related to AI, as it has contributed seven percentage points to Azure’s growth this year.

With AI development being a primary focus for many Big Tech firms, including Microsoft, Google, and Meta, it is unsurprising that analysts polled by LSEG predict Microsoft’s capital spending has increased by approximately 53% year-over-year, reaching $13.64 billion during this period.

Though the AI focus could be paying off, as Microsoft continues to see its global revenue increase steadily year-over-year in the last two decades.

According to data from Statista, its total global annual revenue hit $211.92 billion in 2023, a 6.88% increase from 2022. Including the period up to March 31, 2024, it raked in $236.584 billion — a 13.97% increase year over year.

However, there are still fears that too much spending on data centers would amount to little short term returns, which caused a stock market dip in the United States and falling shares of Google’s Alphabet.

Alphabet’s profits were nonetheless up by 29% for the previous quarter with much credit to its AI splurge.

Though its spending patterns are similar to Google, Microsoft’s investors are looking to it to “continue to accelerate revenue growth” or face disappointment.

Microsoft holding on

Microsoft’s shares have seen an increase of 13% this year alone, which equates to over $350 billion to the company's market value.

Overall it is anticipated to bring in a 14.6% increase in overall revenue for the April-June period, which is down 17% growth from the previous quarter. Analysts say this is due to less growth in its personal computing business that includes Windows and the Xbox gaming division.

The company was at the center of a major global outage on July 19 linked to cybersecurity software from CrowdStrike, which disrupted various critical services across the globe, including emergency services, banks, airports and broadcasters.