Microsoft lays out an aggressive spending plan to serve AI demand

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OpenAI, which owns the popular ChatGPT service. Microsoft has been strategically integrating AI into its products, like the "Copilot" assistant, priced at $30 per month, which efficiently summarizes daily emails for Microsoft 365 users. Additionally, the company aims to offer cloud computing services to other firms, facilitating the development of their own AI services.

While its Azure sales growth slightly exceeded market expectations, Microsoft's quarterly capital expenditures hit the highest single-quarter total since at least its fiscal 2016. The company is battling other cloud providers for a limited supply of chips from Nvidia Corp, whose graphics processing units are essential for creating AI products and services. CFO Hood told analysts that despite Microsoft's increased spending in fiscal 2024, operating profit margins would grow slightly after adjusting for the effects of an accounting rule change.

"The real focus here is being able to be aggressive in meeting the demand curve," Hood said. It will take time to make money, Hood said, noting that Copilot is not ready for general release and any revenues from the product are likely to happen toward the second half of fiscal 2024. Microsoft forecast Azure revenue growth of 25%-26% in constant currency for the fiscal first quarter, compared with an estimate of 25.6% from Visible Alpha that does not adjust for foreign exchange rates.

For the segment that includes Azure, Microsoft forecast a first-quarter revenue range with a midpoint of $23.45 billion. Analysts on average estimated $23.55 billion, according to Refinitiv data. The midpoint of its first-quarter forecast for the segment containing Office was $18.15 billion, compared with analysts' consensus estimate of