4 Key Takeaways From Microsoft's Earnings Call

After Microsoft (MSFT) reported better-than-expected earnings for nan fiscal 4th fourth but its unreality maturation missed estimates, executives gave investors an update connected nan tech giant's investments successful artificial intelligence (AI), capacity constraints, outlook, and much successful nan company's net call.

AI Capacity Constraints Hold Back Cloud Growth

Microsoft CFO Amy Hood said that nan company's AI-related capacity lagging demand, coupled pinch weakness successful immoderate European regions, contributed to nan company's softer-than-expected unreality growth.

The CFO said location "was immoderate softness connected non-AI consumption" successful immoderate European markets, and that "capacity constraints peculiarly connected AI and Azure" contributed to unreality gross coming successful astatine nan little extremity of erstwhile guidance ranges.

Hood added that AI capacity could proceed to lag down request until nan 2nd half of 2025.

Ramping Up Investment successful AI To Meet Demand

Microsoft, on pinch galore of its big tech peers, is boosting its investments successful AI to unafraid its position arsenic a leader successful nan space, raising concerns astir higher costs.

When asked astir really nan company's investments could salary off, Microsoft CEO Satya Nadella said capital expenditures are being guided by "demand signals," including Azure AI growth, and that nan company's spending would alteration if request shifts.

Microsoft executives said existent superior spending would let nan institution to meet AI request successful nan 2nd half of fiscal 2025, which could thrust gross gains.

Clould and AI Investments Make Up Nearly All of Microsoft's Capital Expenditures

Hood said astir each of Microsoft's $19 cardinal successful superior expenditures were related to unreality aliases AI investments.

Around half of nan spending was dedicated to infrastructure, pinch nan institution building and starring information centers, that nan CFO said "will support monetization complete nan adjacent 15 years and beyond."

Executives told analysts that nan institution views its investments successful AI infrastructure and information centers arsenic semipermanent assets and emphasized their flexility, echoing akin comments from Alphabet (GOOGL) CEO Sundar Pichai last week suggesting nan elasticity of AI infrastructure solutions for illustration information centers could little nan consequence of overinvesting successful nan technology.

Double-Digit Revenue Growth Expected successful Fiscal 2025

Hood said Microsoft anticipates double-digit gross maturation successful fiscal 2025 arsenic nan institution useful to raise capacity to meet demand.

The CFO said that unreality gross is expected to turn betwixt 28% and 29% year-over-year successful nan first 4th of fiscal 2025.

Microsoft shares were down adjacent to 3% astatine $411.40 successful extended trading arsenic of 8:40 p.m. ET Tuesday pursuing nan company's net call.