Microsoft Corp. Indicated that its cloud-computing business will continue to grow slowly in the current quarter as the company struggles to build enough data centers to handle demand for its artificial intelligence products.
Revenue at Microsoft’s Azure cloud division will increase as much 32% in its fiscal third quarter, only slightly faster than its performance during the last three months of 2024.
The Redmond, Washington-based software maker is considered a leader in commercializing artificial intelligence products, thanks to its close partnership with ChatGPT developer OpenAI. Over the past year, Microsoft has unleashed a blizzard of Copilot-branded AI assistants, but monetizing those products is taking longer than some investors would prefer.
Microsoft reported that Azure AI services grew 157%. However, overall sales in the key cloud unit are being hurt by the fact that the company still doesn’t have enough data center capacity to meet customer needs, Chief Financial Officer Amy Hood said in an interview. She later told investors that the capacity constraints are expected to ease by the end of the fiscal year.
Microsoft has almost $300 billion worth of commercial service contracts that it must provide in the future and has not yet recognized as revenue, Hood said.
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Demand remains strong, with commercial bookings—a measure of future revenue—rising 67%, “far ahead” of what Microsoft had expected, she said. Hood partly attributed this surge to Azure commitments from OpenAI.
Along with cloud rivals Google and Amazon.com Inc., Microsoft is spending more than it ever has in its history, outlays that mostly go to the chips and data centers required to fuel power-hungry AI services. The company has said it expects to spend $80 billion this fiscal year on AI data centers. Wall Street has begun to question the massive outlays, especially after the Chinese upstart DeepSeek released a new open-source AI model that it claims rivals the abilities of U.S. technology at a fraction of the cost.
Microsoft reported capital expenditures during the quarter were $22.6 billion, exceeding analyst expectations of about $21 billion. The infrastructure buildout resulted in narrower margins in the cloud business.
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