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Blue Whale News July 31 (Reporter Zhu Junxi)Strong performance could not stop Microsoft's stock price from falling. On July 30, local time, Microsoft announced its quarterly results ending June 30, 2024. Although both total revenue and profits achieved double-digit growth, the question that investors want to answer is: Has Microsoft's large investment in artificial intelligence infrastructure received a reasonable return?

The financial report shows that Microsoft's total revenue for the fourth quarter ending June 30 was US$64.7 billion, a year-on-year increase of 15%, and its adjusted earnings per share was US$2.95, a year-on-year increase of 10%, both slightly higher than analysts' expectations.

Amy Hood, Microsoft's executive vice president and chief financial officer, said in the earnings report: "We ended this fiscal year with a solid quarter, with the highlight being record orders. Microsoft's cloud computing quarterly revenue reached $36.8 billion, a year-on-year increase of 21%."

However, the market’s reaction was poor due to the sharp drop in AI stocks such as Nvidia.

After the earnings report was released, Microsoft's stock price fell 7% after the market, but then narrowed. In fact, Microsoft's stock price has risen nearly 13% this year, and it hit a record high on July 5. However, due to recent investors' concerns about whether the wave of artificial intelligence is overly enthusiastic, technology stocks have performed weakly, and Microsoft's stock price has also begun to fall.

From the perspective of specific business, the Intelligent Cloud Division is the core component of Microsoft's cloud business, mainly providing cloud services and solutions to enterprises. The Intelligent Cloud business recorded revenue of US$28.5 billion this quarter, a year-on-year increase of 19%, but lower than the US$28.68 billion expected by analysts.

Among them, Azure cloud computing platform and other cloud service revenue increased by 29%, lower than the expected 30.6%, and the growth rate slowed down compared with the previous two quarters. Microsoft did not disclose Azure's specific revenue data, but revealed that AI contributed about 8 percentage points, higher than 7 percentage points in the previous quarter.

In addition to the slowdown in cloud business growth, investors are also beginning to pay more attention to Microsoft's huge spending on AI. The financial report shows that Microsoft's capital expenditure this quarter is as high as 19 billion US dollars, a year-on-year increase of 77.6%, and a significant increase from the previous quarter's 14 billion US dollars.

In the earnings call, Amy Hood explained that cloud computing and AI-related expenditures account for almost all of the total capital expenditures. About half of them are infrastructure needs, and the remaining related expenditures are mainly used for servers, which will provide customers with CPU, GPU and other services based on demand signals.

Amy Hood also said that Microsoft plans to continue to expand infrastructure investment, build and lease data centers, and capital expenditures in fiscal 2025 are expected to exceed this fiscal year. She pointed out that this expenditure is necessary to support the demand for artificial intelligence services, and land and data centers are long-term assets that may take 15 years or even longer to pay off.

Microsoft Chairman and CEO Satya Nadella reassured investors that Microsoft knows how to manage capital expenditures and build long-term assets. Once demand signals are found, equipment will be added and data training will be increased. He said that what is more important is to seize opportunities and drive value improvement by providing users with the right and appropriate product portfolio.

But investors may be disappointed with the extended time to return. Daniel Morgan, senior portfolio manager at financial services company Synovus Trust, told Reuters, "Wall Street doesn't have much patience. They see you spend billions of dollars and want to see an increase in revenue. If these companies don't meet or exceed expectations, they will be hit."

Last week, another technology giant, Google, released its latest quarterly financial report. Its stock price also fell because its capital expenditure far exceeded market expectations, while revenue growth from AI was modest.

Google CEO Sundar Pichai emphasized in the earnings call at the time that the risk of underinvestment in AI is far greater than the risk of overinvestment. Even if overinvestment occurs, current investments in infrastructure such as data centers can be used for other tasks, and not staying ahead in the AI ​​race will have a more serious negative impact on the company.

This week, Meta, Amazon and other technology giants will also release their financial reports one after another. It is expected that AI-related capital expenditures will continue to be the focus of attention. After Microsoft announced its results, Meta and Amazon both fell nearly 3% after the market closed.