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(Bloomberg) -- Microsoft Corp. said its cloud-computing business will continue to grow slowly in the current quarter as the company struggles to build enough data centers to handle demand for its artificial intelligence products.
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Revenue at the Azure cloud division will increase as much 32% in its fiscal third quarter, not much faster than it did during the last three months of 2024. The shares fell 6% to $415.79 at 9:33 a.m in New York on Thursday.
The Redmond, Washington-based software maker is considered a leader in commercializing artificial intelligence products, thanks to its close partnership with ChatGPT maker OpenAI. In the last year, Microsoft has unleashed a blizzard of Copilot-branded AI assistants, but efforts to monetize those products is taking longer than some investors would prefer.
Microsoft said Azure AI services grew 157%. But overall sales in the key cloud unit are being hurt by the fact that the company still doesn’t have enough data center capacity to meet customer needs, Chief Financial Officer Amy Hood said in an interview. She later told investors that the capacity constraints should lift by the end of the fiscal year.
The company has almost $300 billion worth of commercial service contracts that Microsoft must provide in the future and has not yet recognized as revenue, she said.
Demand remains strong, with commercial bookings — a measure of future revenue — rising 67%, “far ahead” of what Microsoft had expected, she said. Hood attributed that partly to Azure commitments from OpenAI.
Along with cloud rivals Google and Amazon.com Inc., Microsoft is spending more than it ever has in its history, outlays that mostly go to the chips and data centers required to fuel power-hungry AI services. The company has said it expects to spend $80 billion this fiscal year on AI data centers. Wall Street has begun to question the massive outlays, especially after the Chinese upstart DeepSeek released a new open-source AI model that it claims rivals the abilities of US technology at a fraction of the cost.
Capital expenditures during the quarter were $22.6 billion, the company said, exceeding analyst expectations of about $21 billion. The infrastructure buildout resulted in narrower margins in the cloud business.