Microsoft Signals Heavy AI Spending, Amid Healthy FY23 Results

Microsoft cloud

Software giant beats Wall Street Q4 expectations, as firm details heavy spending to meet demand for AI services

Microsoft spending on data centre capacity to deliver for artificial intelligence (AI) services has risen, and will continue rising each quarter throughout fiscal 2024, CFO Amy Hood has told investors.

The spending warning comes after Microsoft posted its fourth quarter and full year 2023 financial results, which saw the software giant beat Wall Street’s Q4 expectations.

Microsoft is already a heavy investor in AI. Redmond is the main financial backer of OpenAI and recently it also invested in competitor Inflection AI, founded by DeepMind co-founder Mustafa Suleyman and LinkedIn co-founder Reid Hoffman.

FY23 Results

Digging into Microsoft’s financial report, it shows that for the fourth quarter ending 30 June, the software giant posted a net profit up 20 percent at $20 billion, from a profit of $16.7bn in the same year-ago quarter.

Q4 revenue rose 8 percent to $52.2bn, up from $51.8bn a year earlier.

For the full year fiscal results, Microsoft posted a net profit of $72.4bn, only slightly down from $72.7bn in 2022.

Full year revenues was up 7 percent at $211.9bn, from $198.3bn in 2022.

“Organisations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly,” said Satya Nadella, chairman and CEO of Microsoft.

“We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage,” said Nadella.

Divisional performance

It is clear that Microsoft is still contending the slump in the PC sector, after the More Personal Computing division reported sales (including Windows OS) down 4 percent at $13.9bn.

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Microsoft said that Windows OEM revenue decreased 12 percent; devices revenue decreased 20 percent; while Windows Commercial products and cloud services revenue increased 2 percent.

This division also saw Xbox content and services revenue increase 5 percent; while search and news advertising revenue excluding traffic acquisition costs increased 8 percent.

The Productivity and Business Processes division, the segment with the LinkedIn social network and its Office productivity software, posted revenues up 10 percent at $18.3bn.

Azure remains a bright point, after revenue in the Intelligent Cloud division rose 15 percent to $24bn.

This was helped a 17 percent rise in server products and cloud services revenue, driven by a revenue growth in Azure and other cloud services up 26 percent.

Microsoft also returned $9.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2023.