Dive Brief:
- Microsoft poured $19 billion into capital expenditures, largely to build out data center capacity to satisfy cloud and AI workload demand, the company’s EVP and CFO Amy Hood said Tuesday, during a Q4 2024 earnings call.
- “Cloud and AI related spend represents nearly all of total capital expenditures,” Hood said. Roughly half went into building and leasing data centers. The remaining portion paid for CPU and GPU hardware to “serve customers based on demand signals.”
- The tech giant saw cloud revenues surpass $36 billion, as the segment grew 21% year over year during the three-month period ending June 30. Microsoft’s overall revenue was just over $64 billion, with cloud accounting for more than half of the total.
Dive Insight:
Microsoft’s enormous cloud footprint was growing steadily before its stake in OpenAI gave the company a jump in the race. It has gained even more ground since.
The technology provider captured one-quarter of global cloud service revenue, its largest share of yet of an $800 billion market, during the first three months of the year. The company’s Azure platform services segment, a subset of Microsoft’s total cloud business, saw revenue increase 29% year over year, driven in part by AI adoption.
“Azure growth included eight points from AI services, where demand remained higher than our available capacity,” Hood said Tuesday. The company expects growth to accelerate during the second half of the year as data center investments expand Azure’s AI compute capacity.
Multibillion-dollar infrastructure buildouts are the latest front in Microsoft’s ongoing battle for cloud dominance with its larger rival AWS and junior hyperscaler Google.
Amazon’s cloud division owned nearly one-third of the market last year and Google, which spent $13 billion on infrastructure during the first three months of the year, had roughly 11%.
The shift to AI-optimized chips is reshaping strategy along with hyperscaler infrastructure.
“This transition involves both knowledge and capital-intensive investments,” Microsoft CEO Satya Nadella said during the earnings call. “These are long term assets around the world to drive growth for the next decade and beyond.”
The company’s Azure AI large language model service has more than 60,000 customers, up nearly 60% year over year, according to Nadella. “The number of paid Models-as-a-Service customers more than doubled quarter-over-quarter,” he said.
Rapid adoption drove Microsoft to outsource some of its data center needs at a time when excess capacity is exceedingly scarce.
“We have signed up with third parties to help us as we are behind with some leases on AI capacity,” Hood said. “We’ve done that with partners who are happy to help us extend the Azure platform to be able to serve Azure AI demand.”
In the wake of the July CrowdStrike outage that took down millions of Windows devices worldwide and a distributed denial of service attack on Azure Tuesday,
Nadella emphasized the company’s focus on security Monday.
“We are focused on two fundamental things,” he said. “Driving innovation across a product portfolio that spans infrastructure, while in parallel continuing to scale our cloud business and prioritizing fundamentals, starting with security.”