Microsoft investors’ fears escalate over AI’s slow payoff

Microsoft investors are increasingly anxious about the slow financial returns from its significant investments in artificial intelligence despite Azure’s steady growth.

Microsoft investors are questioning whether or not its cloud computing service Azure is doing enough business to justify the billions it is spending on developing its artificial intelligence tools. 

Before its earnings call, expected on July 30, data from Visible Alpha points to steady quarter-over-quarter growth of 31% for Azure.

AI in focus

According to reports, investors expect even more growth related to AI, as it has contributed seven percentage points to Azure’s growth in 2024.

With AI development being a primary focus for many Big Tech firms, including Microsoft, Google and Meta, it is unsurprising that analysts polled by LSEG predict Microsoft’s capital spending has increased by approximately 53% year-over-year, reaching $13.64 billion during this period.

However, the AI focus could be paying off, as Microsoft has seen its global revenue increase steadily year-over-year for the past two decades.

According to data from Statista, its total global annual revenue hit $211.92 billion in 2023, a 6.88% increase from 2022. Including the period up to March 31, 2024, it raked in $236.584 billion — a 13.97% increase year-over-year.

However, there are still fears that spending too much on data centers would yield little short-term return, which caused a stock market dip in the United States and falling shares of Google’s Alphabet.

Alphabet’s profits were nonetheless up by 29% for the previous quarter, with much credit to its AI splurge.

Though its spending patterns are similar to Google’s, Microsoft’s investors are looking to it to “continue to accelerate revenue growth” or face disappointment.

Related: Microsoft blames Crowdstrike meltdown on 2009 European Union deal

Microsoft holding on

Microsoft’s shares have seen an increase of 13% in 2024, which equates to over $350 billion in the company’s market value.

Overall, it is anticipated to bring in a 14.6% increase in revenue for the April-June period, which is down 17% from the previous quarter. Analysts say this is due to less growth in its personal computing business, which includes Windows and the Xbox gaming division.

The company was at the center of a major global outage on July 19 linked to cybersecurity software from CrowdStrike, which disrupted various critical services across the globe, including emergency services, banks, airports and broadcasters.