Why Microsoft's Results Cast Doubt on AI ?

© Microsoft

Microsoft has released its financial results for the quarter from April to June. Despite an increase in revenue, the Redmond firm saw its share price fall. The cause was growing investor uncertainty about artificial intelligence (AI).

Microsoft Azure up, but not enough in the eyes of investors

The company's total revenue increased by 15% year-on-year to reach $64.7 billion. But analysts’ eyes were on one particular division of Microsoft: Azure.

Cloud revenue rose 29% from the same period last year, down from the 31% increase seen in the previous quarter and, more importantly, below what investors had expected. About 8% of that increase came from AI, Microsoft notes, compared to 7% in the previous fiscal year.

As a reminder, the software giant is working to deploy AI in most of its products, particularly through Copilot. It also sells Azure subscriptions that include OpenAI models. The problem is that demand for Azure AI services is higher than available capacity, and this trend is expected to continue in the current quarter.

Microsoft shares, which have exploded in recent months thanks to AI, fell about 4% following the release of the results. The same fate was reserved for Google last week; Despite a sharp increase in its cloud sales, the Mountain View firm was punished for spending too much.

Colossal spending on AI

Because at the same time, big tech continues to invest massively in AI. Microsoft spent $34 billion in the past fiscal year, including $13 billion exclusively dedicated to OpenAI. While waiting for significant results, some investors are starting to show signs of irritation. Since the release of ChatGPT at the end of 2022, a media frenzy has taken hold of the technology, the results of which are clearly struggling to materialize.

In addition to still limited infrastructures to support a mass adoption of AI, some companies are still struggling to incorporate it into their business. The majority of customers are just starting to use it; understanding the context of the requests, how to get the most out of them and their practical uses proves to be complex.

Major AI players remain confident that their investments will ultimately pay off. Investor reaction, however, suggests a growing sense of irritation, which could worsen if cloud giants’ results do not improve in the coming quarters. As early as July 2023, experts estimated that AI would become “ the biggest financial bubble in history “.

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